As markets anticipated a speech by Fed Chair Powell, the dollar kept the yen close to a two-week low. This was due to rising anticipation that the U.S. Federal Reserve will maintain rates higher for longer.
With the Fed’s monetary policy meeting quickly coming on October 31–November 1, U.S. central bank officials have been speaking out lately. Among them are Fed Governor Christopher Waller and John Williams.
One of the Fed’s most hawkish members, Waller stated that he would like to “wait, watch and see” to see if the U.S. economy maintains its current strong trend or contracts in response to interest rate rises.
The dollar index, which compares the value of the dollar to a basket of other currencies, remained stable Wednesday morning in Asia, hovering around 106.63.
A spike in U.S. Treasury rates over night provided support for the greenback as worries about the issue of government debt grew in the context of the current interest rate debate.
According to IG Market Analyst Tony Sycamore, the Fed’s recent language indicates a considerable tightening of financial conditions as well as greater uncertainty given recent geopolitical developments in the Middle East.
Policymakers at the Federal Reserve are indicating that they will hold off on raising interest rates for a few more months in order to resolve a number of conflicting signals, such as positive economic statistics and indications of progress on persistently high inflation.
The focus of the market now shifts to Fed Chair Jerome Powell’s Thursday speech.
“I think it highly likely the Fed Chair will reinforce the more cautious commentary heard from Fed speakers over the past week and half,” Sycamore added.
The two-week low of 149.94 on Wednesday was somewhat overcome by the Japanese yen’s small gain to 149.77 per dollar, which is still close to the 150-level that traders believe may serve as a catalyst for Japanese government currency intervention.
The yen had a strong rally earlier in October after dropping below 150, but it eventually retreated, and preliminary data suggests Japan did not step in.
The dollar/yen might climb even more, according to a note written by Carol Kong, a currency strategist and economist at the Commonwealth Bank of Australia, if U.S. rates continue to grow more quickly than those of their Japanese peers.
On Wednesday, the yield on Japanese 10-year government bonds reached a new 10-year high of 0.815%, which prompted the Bank of Japan to announce $2 billion in emergency bond purchases to maintain
“The implication is the risk of FX intervention by the BoJ remains high in our view,” Kong stated.
In other news, the Australian dollar dropped 0.3% against the US dollar to $0.6319, while the kiwi slipped 0.2% to $0.5847.
After dropping overnight, the euro was almost steady against the dollar at $1.05365.