Yen soars to one-month high against dollar amid intervention, rate hike chatter

The U.S. dollar on Thursday was on track for its worst day in just over two weeks, helped by a slide in Treasury yields and a stellar rally in the Japanese yen.

At 14:49 ET (18:49 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, slid 0.7% to 98.91. 

Yen jumps to one-month high

Japan’s currency grabbed the spotlight in foreign exchange markets on Thursday, after an explosive rally strengthened the yen to as much as 155.30 against the dollar, its highest level since August 3, which was just days after a historic intervention by authorities in Washington and Tokyo. Including that landmark joint move, Japan has spent a record 15 trillion yen ($99.09 billion) from July 30 through August 26 to boost its currency.

The yen had crossed 160 earlier this week, seen as a key intervention level monitored by Tokyo. While there was no confirmation of any intervention on Thursday, speculation was rife among investors. 

"The overnight rise in the yen has all the telltale signs of intervention: a sharp rise in the yen (vertical) without any rise in the Japan - U.S. rate differential (horizontal) that can support such a move. If it looks like intervention, it is intervention," Robin Brooks, senior fellow in economic studies at the Brookings Institution, said. 

Perhaps more than intervention moves, the yen has also been supported by hawkish signs from Bank of Japan (BoJ) policymakers this week. U.S. Treasury Secretary Scott Bessent met with BoJ Governor Kazuo Ueda on Sunday at a G20 meeting in North Carolina, where he "expressed strong support for Japan’s decisive market and monetary steps to address the substantial undervaluation of the yen." 

On Tuesday, Ueda confirmed at a conference that a rate hike would be debated in September, while separately BoJ board member Hajime Takata further bolstered hawkish expectations by advocating for a more nimble rate path.

Dollar drops as bond rout lets up, Fed’s Waller provides relief  

Away from the yen, the U.S. dollar on Thursday was also weighed down by a slide in Treasury yields as traders snapped up bonds following a steep sell-off that saw the benchmark U.S. 10-year yield hit its highest level since November 2023 on Tuesday. The 10-year was last down 3.3 basis points to 4.761%. 

The fixed-income rout has been driven by jitters about inflation amid elevated oil prices, fears about unsustainable debt issuance by companies to fund their AI infrastructure buildouts, and ballooning fiscal debt.

Some positive commentary from Fed Governor Christopher Waller helped the mood.

"While inflation remains meaningfully above the Federal Open Market Committee’s (FOMC) 2 percent goal, recent data suggest we are finally seeing some signs of disinflation. If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting," Waller said in prepared remarks at a Reuters NEXT interview in Washington, D.C.

The voting member of the FOMC added that he believed underlying inflation was doing much better than core figures suggested. The remarks marked a less hawkish tone than Fed Chair Kevin Warsh’s speech at the annual Jackson Hole conference last week.

"If there is a theme that is brewing again among the major central banks, it is that monetary policy should stay guarded against the prospect of a supply shock-driven wave of inflation. That’s probably been the clearest and most common motivating factor for the Fed, ECB, RBA, BoC, and BoJ to take on their deliberately more hawkish tones in the past two weeks," Thierry Wizman, global FX and rates strategist at Macquarie, said, referring to the European Central Bank, the Reserve Bank of Australia, and the Bank of Canada. 

"The FX implications of all (central banks) going ’hawkish’ at the same time are indefinite, but in the context of high oil prices we still give the edge to the USD (vs. the AUD, EUR and GBP). That’s because of the scarce oil’s terms of trade benefits for the U.S.," he said.

"The CAD can also do well, in this context, if the U.S.-Canada trade war is resolved amicably, given the BoC’s new hawkishness. We’re reiterating our 1.35 projection for USD/CAD at year end. Of the majors, the CAD has the best chance, we think, of ending the year ’up,’" Wizman added.

The loonie was higher against the dollar on Thursday, with the USD/CAD pair last down 0.4% to 1.3787. 

Euro ticks up even as producer inflation bounces back 

Elsewhere, the euro gained 0.4% to $1.1632.

The advance came despite data from Eurostat which showed industrial producer prices rose 1.6% M/M in the eurozone in July, a sharp reversal from a 0.3% fall in June. On a Y/Y basis, producer prices increased 5.8%, much higher than June’s reading of 4.6%. 

The data comes ahead of the ECB’s interest rate decision next week, where the bank is unanimously expected to tighten policy by 25 basis points. 

Aussie dollar rises on solid trade surplus and GDP beat

The Australian dollar picked up 0.5% to $0.7206, holding its ground against the greenback after economic data highlighted ongoing resilience in Australia’s real economy.

Data from the Australian Bureau of Statistics showed June quarter gross domestic product (GDP) grew 0.4% sequentially and 2.1% Y/Y, beating analyst forecasts. Simultaneously, July trade figures revealed a healthy trade surplus of A$1.923 billion ($1.39 billion), anchored by strong resource exports to Asia.

Roushni Nair, Pranav Kashyap, and Jaiveer Shekhawat contributed to this article