US Dollar gains ground; subdued yen prompts warning

The US Dollar (USD) held firm on Wednesday, recouping some of the losses stemming from renewed bets on Federal Reserve rate cuts this year, while the yen weakened for a third day, keeping investors wary of the risk of intervention from Tokyo.

In Europe, the Swedish crown came under pressure after the central bank cut interest rates and said it expected two more cuts this year, while the pound was stuck in negative territory ahead of a Bank of England meeting the next day.

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The yen remained front of mind for currency traders, weakening for a third day and prompting Japanese officials to issue a stronger warning over the impact of the weak currency on the economy.

Traders believe Japanese authorities spent some $60 billion last week on propping up the yen after it hit its weakest in 34-years against the dollar around 160 yen.

Analysts have said any intervention from Tokyo would only offer temporary respite for the yen, given the wide gap between interest rates in the U.S. and Japan.

“If we were to see a sudden, sharp move up in dollar/yen then I would expect them to step into the market to support the yen. But if we continue to see a gradual move up, I doubt they’ll come in, but there’s obviously a risk,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

The dollar was last up 0.45% against the yen at 155.375, edging away from last week’s low of 151.86, hit on the back of suspected intervention.

FED CONQUERS ALL

Investors are focussed on the pace and timing of Fed rate cuts that will likely drive the currency market. The latest data showing weaker-than-expected U.S. jobs creation, together with an easing bias from the U.S. central bank, have cemented expectations that rates will likely be lower by year-end.

The dollar was last up 0.18% at 105.6 against a basket of currencies, above last week’s one-month low.