Resilient dollar sends yen to the brink of 160

The dollar remained firm on Wednesday and traded on the edge of the 160 yen barrier as investors were cautious and calculating ahead of the release of U.S. price data later in the week.

 

 

The euro declined slightly overnight and remained at $1.0708 in Asian trading. The yen's level of 159.71 per dollar made markets wary as it is just a short distance away from where Japanese authorities likely undertook yen buying in April.

 

 

An unexpected jump in Canadian inflation in data released on Tuesday also injected some nervousness into an otherwise calm currency trade, causing the Canadian dollar to briefly surge to a three-week high.

 

 

"May's (data) suggest that monetary policy normalization is likely to prove protracted and ultimately lead to a return to near-neutral policy rather than expansionary," Westpac senior economist Pat Bustamante said in a note to clients.

 

 

Markets are counting on Friday's U.S. data to show that annual growth in the Fed's preferred core index of personal consumption expenditures slowed to 2.6 percent in May, the lowest in more than three years and paving the way for a rate cut.

 

 

However, policymakers continue to make it clear that they are in no hurry, with Fed Governors Lisa Cook and especially Michelle Bowman emphasizing that decisions will depend on the data.

 

 

"U.S. inflation remains elevated, and I still see a number of upside inflation risks weighing on my outlook," Bowman said.

 

 

The Australian dollar fell 0.1 percent to $0.6640 and the New Zealand dollar also slid to $0.6115, with small movements reflecting thin trading.

 

 

Citi reported this week that interbank FX volumes were about 40% below thirty-day averages, according to electronic trader data.

 

 

Sterling remained steady at $1.268, while bitcoin recovered slightly after falling below $60,000 this week and is trading at $61,668.

 

 

Along with the yen, the Chinese yuan is also under pressure from a stubbornly strengthening dollar. China seems to be showing some tolerance for the cheaper currency, gradually weakening the midpoint of the yuan's daily trading range against the dollar.

 

 

The yuan has been clinging to the lower end of its range for months now and last traded at 7.2884 per dollar in offshore trading.

 

 

"The yen moves more strongly and the yuan's movements are more controlled, but they rarely move in opposite directions," said Societe Generale strategist Keith Jukes.

 

 

"If the USD/JPY pair breaks the 160 mark in the coming days, it will be very difficult to prevent the yuan from weakening further."