Dollar Slips as the Yen Climbs on Intervention Concerns

The dollar index (DXY00) this morning is down by -0.22%.  The dollar is under pressure today as the yen strengthened on concern that Japanese authorities could soon intervene in the forex market to support the yen after Japan’s top currency official said, “the current weakening of the yen is not in line with fundamentals and is clearly driven by speculation.” 

Also, today’s US Feb new home sales report was weaker than expected and was bearish for the dollar. Losses in the dollar were limited by hawkish comments from Atlanta Fed President Bostic and Fed Governor Cook, who warned about cutting interest rates too early. 

The US Feb Chicago national activity index rose +0.59 to 0.05, stronger than expectations of -0.34.

US Feb new home sales unexpectedly fell -0.3% m/m to 662,000, weaker than expectations of an increase to 677,000.

Atlanta Fed President Bostic said if the economy performs as expected, the Fed can be patient on interest rates, and he expects just one 25 bp rate cut this year.

Fed Governor Cook said restoring price stability may take a "cautious approach to easing monetary policy over time," and cutting interest rates too soon could risk inflation becoming entrenched.

The markets are discounting the chances for a -25 bp rate cut at 15% for the next FOMC meeting on April 30-May 1 and 80% for the following meeting on June 11-12.

EUR/USD (^EURUSD) is up by +0.31%.  A weaker dollar today has sparked some short covering in EUR/USD. Gains in the euro are limited by dovish comments from ECB Governing Council member Panetta, who said inflation across the Eurozone is falling quickly, allowing for a possible cut in interest rates. 

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on April 11 and 91% for the following meeting on June 6.

USD/JPY (^USDJPY) this morning is down by -0.07%.  The yen today strengthened against the dollar on speculation Japanese authorities could soon intervene in currency markets to support the yen after top Japanese currency official Kanda said, “We will take the appropriate action against excessive fluctuations, without ruling out any options." Higher T-note yields today limit the strength of the yen.

The Japan Jan leading index CI was revised downward by -0.4 to 19.5 from the previously reported 109.9.

Japan's top currency official, Kanda, said, "The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation.  We will take the appropriate action against excessive fluctuations without ruling out any options."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 4% for the April 26 meeting and 30% for the following meeting on June 14.

April gold (GCJ4) this morning is up +20.0 (+0.93%), and May silver (SIK24) is up +0.132 (+0.53%).  Precious metals this morning are moderately higher, boosted by a weaker dollar.  Gold also garnered support on comments from ECB Governing Council member Panetta, who said inflation across the Eurozone is falling quickly, allowing for a possible cut in interest rates.  Weakness in stocks today has also boosted safe-haven demand for precious metals.   

On the negative side for precious metals today are higher global bond yields.  Also, hawkish comments today from Atlanta Fed President Bostic and Fed Governor Cook were bearish for gold as they cautioned against cutting interest rates too early. 

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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