Dollar Dominates as Yen Tumbles to 10-Month Low
The US dollar is flexing its muscles, reaching a fresh multi-week peak after its most significant single-day gain in over a month. This surge comes on the heels of the latest Federal Reserve meeting minutes, which poured cold water on market expectations for an interest rate cut in December. Simultaneously, the Japanese yen has taken a severe beating, sliding to a new 10-month low as traders bet against immediate intervention from Japanese authorities to support their currency.
Yen's Steep Decline and Intervention Watch
During Asian trading on Thursday, the yen weakened to 157.48 per dollar, a level not seen since the beginning of this year. The currency's persistent decline gained momentum after Japan's Finance Minister, Satsuki Katayama, indicated that specific foreign exchange topics were not discussed in a meeting with Bank of Japan Governor Kazuo Ueda.
Remarkably, the yen has depreciated by approximately 6% since Prime Minister Sanae Takaichi was elected party leader. This drop is occurring despite rising Japanese government bond yields, a factor that would typically support a currency. Market participants are growing increasingly anxious about the potential scale of government borrowing required to finance the new leader's proposed economic stimulus plans.
Vishnu Varathan, Head of Economics & Strategy for Asia at Mizuho Bank, highlighted the anomaly, stating, "You must either believe that there's a 'Sell Japan' narrative going on, or you take the view that these relationships are no longer stable," pointing out that the yen is falling even as the interest rate gap between the US and Japan narrows.
With the yen now trading near where it started the year, market speculation suggests that Japanese officials might consider stepping into the Forex market to prop up their currency if it approaches the 160 per dollar mark or if the declines become excessively volatile. Adding to the concerns, Japan's Chief Cabinet Secretary Minoru Kihara described the recent currency moves as sharp, one-sided, and worrisome.
Global Currencies Feel the Pressure from a Stronger Dollar
The dollar's strength was not isolated to the yen. Major currencies across the board felt the pressure. The minutes from the Federal Reserve's October meeting revealed that "many" participants had already ruled out a rate cut in December, while only "several" still viewed it as a possibility.
According to Moh Siong Sim, a Currency Strategist at Bank of Singapore, the Fed's language is key. "In Fedspeak, 'many' means more than 'several', so I think there's a bit of a hawkish message that's supporting the dollar," he explained.
As a result, the euro fell to a two-week low of $1.1510. The British pound also dipped, sliding to $1.3040. The New Zealand dollar, or Kiwi, experienced a particularly rough session on Wednesday, plunging 1% to a seven-month low of $0.5591 before stabilizing at $0.5611 on Thursday. This weakness stems from the diverging interest rate paths of New Zealand and the United States.
The market is now fully anticipating a rate cut from the Reserve Bank of New Zealand next week. In stark contrast, the probability of a Fed rate cut in December has plummeted to below 25%, a dramatic shift from being considered a near-certainty just a month ago. The dollar index, which measures the greenback against a basket of major currencies, rose 0.5% overnight, breaking through its 200-day moving average, and was last seen up 0.15% at 100.25.
