“The Dollar-Yen exchange rate hits a major milestone as it breaches the 150 level, following a powerful impact from Powell’s remarks and a surprising twist in the Treasury market, leaving investors captivated.”
The dollar briefly reached the significant 150 level against the yen on Friday, driven by a rise in U.S. 10-year Treasury yields towards 5%. Federal Reserve Chair Jerome Powell’s comments suggesting the possibility of more rate hikes contributed to this increase. The yield on the benchmark 10-year Treasury rose by 30 basis points this week, marking its largest weekly rise since April 2022. While there has been a push into safe-haven assets due to the war in the Middle East, trading in Treasuries has been mainly influenced by the rate outlook.
However, the dollar’s gains have been marginal this week, despite the rise in Treasury yields. The market is cautious about the 150 level against the yen, as it could potentially trigger intervention by Japan’s Ministry of Finance (MOF) to support the currency. Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets, noted that the market remains wary of breaching this threshold. Additionally, the market is already long on dollars, making it challenging to add to those positions.
Speculators have significantly increased their bullish dollar positions against other G10 currencies this month, reaching the highest level in a year. The dollar/yen pair, which rose to 150.00 on Friday, tends to track 10-year U.S. yields. Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo, highlighted the belief that the MOF will intervene at 150, but if that belief breaks, it could lead to a significant move up in the dollar-yen pair.
In his speech on Thursday, Fed Chair Powell indicated that the robust U.S. economy and tight labor markets may require stricter borrowing conditions to control inflation. However, he also mentioned that rising market interest rates could reduce the need for the central bank to act. The market now expects the Fed to pause or forego a rate hike at the upcoming policy meeting.
Meanwhile, the pound weakened after data releases showed a decline in British consumer confidence in October, following weak retail sales the previous month. The euro remained steady, while the Swiss franc experienced its largest weekly gain against the dollar in three months due to safe-haven flows. The Swiss franc also reached its highest level against the euro since 2015.
In Asia, the Chinese yuan remained steady against the dollar after China kept its benchmark lending rates unchanged, matching market expectations. Carol Kong, a currency strategist at Commonwealth Bank of Australia, expects further monetary easing in China before the end of the year due to the fragility of the Chinese economy.
Overall, the dollar’s movement against the yen and other currencies is influenced by various factors such as Treasury yields, rate expectations, and geopolitical events. Market participants remain cautious about breaching the 150 level against the yen and anticipate further developments in global economic conditions.