The dollar held its ground on Wednesday, reclaiming some lost ground following renewed speculations about Federal Reserve rate cuts later this year. Meanwhile, the yen saw its third consecutive day of weakening, leaving investors cautious about potential intervention from Tokyo.
Across Europe, the Swedish crown faced pressure after the central bank announced interest rate cuts and projected two more cuts within the year. The pound remained in negative territory ahead of an upcoming Bank of England meeting.
Concerns about the yen persisted among currency traders, prompting Japanese officials to issue a stronger warning regarding the currency’s impact on the economy.
Last week, Japanese authorities reportedly spent approximately $60 billion to support the yen, which had weakened to its lowest level against the dollar in 34 years, reaching around 160 yen.
Analysts noted that any intervention by Tokyo would likely provide only temporary relief for the yen, given the substantial interest rate differential between the U.S. and Japan.
Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC: CMWAY), commented, “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.”
The dollar strengthened by 0.45% against the yen to 155.375, moving away from last week’s low of 151.86, which occurred amidst suspected intervention.
Focus on Fed Rate Cuts
Investor attention remains fixed on the pace and timing of Federal Reserve rate cuts, which are expected to influence the currency market significantly. Weaker-than-expected U.S. job creation data, coupled with the Federal Reserve’s inclination towards easing monetary policy, have solidified expectations of lower rates by year-end.
The dollar rose by 0.18% against a basket of currencies to 105.6, surpassing last week’s one-month low.
Meanwhile, European central banks have already begun implementing interest rate cuts, with the Swiss National Bank cutting rates in March preceding Sweden’s Riksbank announcement on Wednesday.
The European Central Bank has indicated its intention to cut rates in June, provided that economic indicators align accordingly. Similarly, the Bank of England is gradually preparing for its first rate cut.
XTB research director Kathleen Brooks remarked, “What we’re looking at is a series of European central banks cutting rates over the next few months, whether it’s in June or August. There’s nearly a 50% chance of the Fed cutting in September, but I think that’s probably the one that could get pushed out.”
She added, “For now, and particularly today, the focus is on Europe cutting first, and we’re seeing that upward pressure on the dollar.”
The euro declined by 0.12% to $1.074, while against the Swedish crown, it rose by 0.6% to 11.752 crowns. Sterling fell by 0.3% to $1.2474.
In the cryptocurrency market, bitcoin experienced a 1.2% decrease to $62,225, marking its fourth consecutive daily loss, the longest stretch of declines so far this year. Ether also fell by 1.6% to just below $3,000.
