Written by Ray Wei and Elon John
SINGAPORE/LONDON (Reuters) – The dollar held near its recent peaks on Thursday, boosted by expectations that the US Federal Reserve will continue to tighten policy aggressively as it tries to curb inflation, while the yen faltered after jumping sharply the previous day.
The dollar was up 0.28% against the yen at 143.58, after falling 1% on Wednesday on news that the Bank of Japan has checked exchange rates with banks – a potential willingness to buy the yen.
The euro was back below parity against the dollar, down 0.15% to $0.99635, not far from a 20-year low of $0.9864 hit last week, while the pound was also 0.26% weaker at $1.15115.
That left the company at 109.84, holding on to its 1.5% gain from Tuesday, when US inflation data came in higher than expected. This caused markets to rearrange the Fed, apparently leaving it with little choice but to go ahead with another big hike at next week’s rate-setting meeting.
Fed fund futures are now priced with about a 30% chance the Fed will raise rates by 100 basis points, and a 70% chance of a 75 basis point increase.
Traders will be watching US retail sales and industrial production data due later in the day, with ING analysts noting that the data is the thing most likely to cause downbeat requotes.
The Federal Reserve has, in recent months, been unwilling to resist hawkish market expectations.
However, ING concluded, “We see a good chance that today’s data will not lead to lower physical repricing in the Fed rate outlook, and the hawkish stalemate at next week’s meeting means the dollar could remain supported.”
The yen was also in focus as investors continued to debate whether the Japanese authorities would really step in to prop up the volatile currency, which is down nearly 20% this year.
But some market watchers are skeptical that there will be direct intervention, or that it will have a lasting effect. Satsuki Katayama, head of Japan’s ruling party finance committee, told Reuters that the country lacks effective means to combat the yen’s sharp declines.
The record Japanese trade deficit for August also confirmed the bears case for the JPY.
“The direction of the yen movement continues to be on more weakness…if they really want to stop this weakness, a change in BOJ policy is the recipe,” said Rodrigo Catrel, currency analyst at National Australia Bank (OTC :). .
“Our sense is that the intervention will, of course, scare the speculators on that day, but it is unlikely to last much longer.”
In the cryptocurrency markets, ether hasn’t moved much after inventor and co-founder Vitalik Buterin tweeted that a major software upgrade to the Ethereum blockchain aimed at drastically reducing energy usage had been completed.
The token, which supports the ethereum network, is down 1.5%. It was even softer at just under $2,200.