TOKYO: The dollar held the yen near a two-week low, as growing expectations the US Federal Reserve will keep rates higher for longer had the greenback and US Treasury yields on the rise overnight and markets awaited a speech by Fed Chair Powell.
Fed Governor Christopher Waller and John Williams were among the latest US central bank officials to make comments this week, with the Fed’s Oct. 31 - Nov. 1 monetary policy meeting fast approaching.
Waller, who is one of the Fed’s most hawkish members, said he wants to “wait, watch and see” if the US economy continues its run of strength or weakens in the face of interest rate hikes to date.
The dollar index, which measures the dollar against a basket of currencies, held steady near Wednesday’s high of 106.63 in the Asian morning.
The greenback received support from a surge in US Treasury yields overnight, as concerns about government debt issuance mounted against the backdrop of the ongoing interest rate discussion.
Recent rhetoric from the Fed reflects significant tightening in financial conditions, as well as increased uncertainty given recent geopolitic events in the Middle East, according to IG Market Analyst Tony Sycamore.
Dollar steadies while yields rise; eyes on Mideast risks, China data
Federal Reserve policymakers are signaling a pause in hiking interest rages for another couple months as they wait for a resolution of mixed signals, including strong economic data and signs of progress on still-stubbornly high inflation.
Market attention now turns to Fed Chair Jerome Powell, who is set to speak on Thursday. “I think it highly likely the Fed Chair will reinforce the more cautious commentary heard from Fed speakers over the past week and half,” said Sycamore.
The Japanese yen strengthened slightly to 149.77 per dollar, off Wednesday’s two-week low of 149.94 but still near the 150-level that markets perceive as a potential trigger for currency intervention by Japanese authorities.
Earlier in October, the yen rallied sharply after falling past 150, although it later fell back and early indications suggest Japan did not intervene.
Dollar/yen could be pushed even higher depending on whether US yields continue to rise at a faster pace than their Japanese peer yields, Carol Kong, currency strategist and economist at the Commonwealth Bank of Australia, wrote in a note.
Japanese 10-year government bond yields rose to a fresh decade high of 0.815% on Wednesday, prompting the Bank of Japan to announce $2 billion in emergency bond-buying to keep downward pressure on yields.
“The implication is the risk of FX intervention by the BoJ remains high in our view,” said Kong.
Elsewhere, the Australian dollar fell around 0.3% versus the greenback to $0.6319, while the kiwi was down nearly 0.2% at $0.5847.
Against the dollar, the euro mostly flat at $1.05365 after falling overnight.
Sterling stood steady at $1.2137.