USA Dollar

Japan’s yen tumbles to 34-year low; US dollar gains after inflation data


* BOJ leaves rates unchanged, signals future hikes

* Dollar hits fresh 34-year high vs yen

* Markets on lookout for Japan intervention

* U.S. PCE report comes in line with expectations

* September Fed rate cut odds increase

* Focus on Fed policy meeting next week

NEW YORK, April 26 (Reuters) – The dollar surged to a
fresh 34-year high against the yen on Friday, bolstered in part
by U.S. inflation data that showed no signs of easing, coming in
line with forecasts and affirming expectations that the Federal
Reserve will likely delay cutting interest rates to later this
year.

The dollar’s peak against the yen came after the Bank of
Japan kept interest rates steady at its end of its two-day
policy meeting, although it flagged future rate hikes. With the
yen at multi-decade lows, market participants were on alert for
possible intervention from Japan to prop up its currency.

The dollar hit 157.795 yen, the highest since June
1990, and was last up 1.3% at 157.71. The greenback briefly
dropped as low as 154.97 earlier in the session, triggering
speculation that the BOJ, which acts on the behalf of the
Ministry of Finance, may have checked currency rates, supposedly
a sign that the central bank is preparing to intervene.

It was not immediately clear what caused the move.

The greenback was on track for a 2% weekly gain against the
Japanese currency, the largest since mid-January.

In the United States, the focus was on inflation.

The personal consumption expenditures (PCE) price index rose
0.3% in March, compared to a forecast of a 0.3% increase, data
showed. In the 12 months through March, PCE inflation advanced
2.7% against expectations of 2.6%.

The PCE price index is one of the inflation measures tracked
by the Fed for its 2% target. Monthly inflation readings of 0.2%
over time are necessary to bring inflation back to target.

“While the Friday result wasn’t quite as hot as the whisper
number, the stark reality is that short-term trends on the Fed’s
favored inflation gauge have steadily headed due north since the
start of 2024,” wrote Douglas Porter, chief economist at BMO.

Porter added that the monthly rise of 0.32% prompted a small
market sigh of relief, but noted that the figure would have
matched the fastest monthly rise in the decade prior to the
pandemic.

“That’s hardly going to give the Fed ‘confidence’ that
inflation is calming,” Porter wrote.

Post-inflation data, U.S. rate futures have priced in a 58%
chance of a Fed cut at the September meeting, down from 68% a
week ago, according to the CME’s FedWatch tool. A Fed easing is
priced more than 80% in December.

In afternoon trading, the dollar index was up 0.3% at
105.93.

The euro fell 0.2% to $1.0705. On the week, it was
up 0.4%, on pace for its largest weekly rise since early March.

Versus the yen, the euro hit a new 16-year peak of 168.85
yen. It last traded at 168.845, up 1.1%.

On a weekly basis, the single European currency rose 2.5%
against the yen, poised for its best showing since mid-June
2023.

Sterling slipped 0.1% to $1.2501. It rose 1.1%
against the dollar on the week, its largest gain since early
March.

In Japan, the BOJ left its short-term interest rate target
at 0-0.1% on Friday and made small upward adjustments in its
inflation forecast. Investors had not expected a policy shift
but took the decision as confirmation that only small moves lie
ahead.

BOJ Governor Kazuo Ueda told a press conference after the
rate decision that monetary policy did not directly target
currency rates, but exchange-rate volatility could have a
significant impact on the economy and prices.

“If yen moves have an effect on the economy and prices that
is hard to ignore, it could be a reason to adjust policy,” Ueda
said.

Currency investors are now focused on next week’s Federal
Open Market Committee (FOMC), in which the U.S. central bank is
expected to hold interest rates steady.

The market is positioned for a hawkish Fed at the meeting
and a stronger dollar given the run of better-than-expected
economic data.

Brian Dangerfield, head of G10 FX strategy, U.S. at NatWest,
wrote in a research note that the bank believes Fed Chair Jerome
Powell will not rule out rate hikes, prerequisite for having a
data-dependent policy. A rate hike, however, is not the FOMC’s
base case, Dangerfield added.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Joice Alves and Alun John in London and Tom Westbrook in
Singapore; Editing by Andrea Ricci and Will Dunham)



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