Dollar hits multi-week highs as Fed seen less dovish than peers
Business
The dollar index, which measures the currency against six major currencies, spiked 0.41% overnight
TOKYO (Reuters) – The US dollar pushed to a fresh eight-week top above 159 yen and clung close to a five-week peak to sterling on Friday, with the Federal Reserve's patient approach to cutting interest rates contrasting with more dovish stances elsewhere.
The dollar index, which measures the currency against six major peers including the yen, sterling, euro and Swiss franc, spiked 0.41% overnight, erasing declines for the week, following a second successive rate cut at the Swiss National Bank and hints from the Bank of England for a reduction in August.
Meanwhile, the yen has remained on the back foot after the Bank of Japan's decision last week to hold off on reducing bond buying stimulus until its July meeting.
As a result, "traders punished the yen with renewed enthusiasm," driving it past the closely watched 159 per dollar level on Friday, said Tony Sycamore, market analyst at IG.
"The BOJ's timeline is sharply out of sync with the markets, and this misalignment will likely force the BOJ to act to support the yen (via currency intervention) sooner than it might have needed to," Sycamore said.
The BOJ, at the behest of Japan's finance ministry, spent some 9.8 trillion yen ($61.64 billion) to yank the currency back from a 34-year trough of 160.245 per dollar, reached on April 29.
Because of that, the US Treasury on Thursday added Japan to a list of countries it is monitoring for potential labelling as a currency manipulator. China is among others on the list.
Even so, Japan's top currency diplomat Masato Kanda stressed on Friday that Tokyo stands ready to take further "resolute" action against "speculative, excessive volatility".
The dollar last traded 0.04% weaker at 158.875 yen, after earlier edging as high as 159.12.
The US currency was little changed at 0.8909 Swiss franc, following a 0.78% surge overnight.
The dollar index eased 0.09% to 105.54, on course for a flat finish to the week, following two straight weeks of gains.
Sterling added 0.05% to $1.26635, not straying far from the $1.2655 low from Thursday, a level last seen on May 17. The BoE kept rates on hold, but some policy makers said the decision not to cut was "finely balanced".
The euro climbed 0.17% to $1.07198, clawing back part of Thursday's 0.39% slide. The European Central Bank kicked off its rate cutting cycle earlier this month.
Fed officials, meanwhile, left policy unchanged at their June meeting, and shaved previous projections for three quarter-point cuts this year to one, even as inflation has cooled and the labour market has eased.
"The resilience of the US economy has afforded the Federal Reserve a unique position, enabling the US central bank to employ higher interest rates as a tool to combat inflation more swiftly than it otherwise could," said James Kniveton, senior corporate FX dealer at Convera.
"With other major central banks adopting more dovish stances, this has the potential to continue to bolster the dollar over the short to medium term."
