By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) – The dollar fell slightly on Monday but remained close to the highest level in about eight weeks, while the yen jumped briefly as it approached the 160 level that had earlier sparked verbal warnings from Japanese authorities.
The yen fell to 159.94 yen to the dollar in early trading, its lowest level since April 29, when the yen touched a 34-year low of 160.245, prompting Japanese authorities to spend nearly 9.8 trillion yen to support the currency.
The currency’s brief rise in the European morning saw it trade as high as 158.75 against the dollar, with analysts suggesting the market is on the brink given current levels.
“It certainly doesn’t look like an intervention… However, it does illustrate how nervous the market is likely to be about the prospect of intervention,” said Michael Brown, chief research strategist at Pepperstone.
“I think that as long as any further weakness is not rapid or disorderly in nature, the Treasury is unlikely to intervene now.”
The yen’s price rose slightly recently to 159.54 to the dollar.
Earlier, Masato Kanda, Japan’s chief currency diplomat, said that the authorities will take appropriate steps if there is excessive movement in foreign exchange, and that adding Japan to the US Treasury’s watch list will not restrict its actions.
The yen came under renewed pressure after the Bank of Japan (BOJ) decided this month to postpone reducing its bond-buying incentives until its meeting in July. It fell 1.5% in June.
A summary of views at the Bank of Japan’s June policy meeting on Monday showed that some policymakers called for timely rate hikes as they saw the risk of inflation exceeding expectations.
The yen, which is highly sensitive to US Treasury bond yields, has fallen more than 10% against the dollar so far this year, weighed down by the wide spread between interest rates in Japan and the United States.
Testing future inflation
This week, the spotlight will be on the US Personal Consumption Expenditures Price Index due for release on Friday.
Economists polled by Reuters expect annual growth in the index to slow to 2.6% in May. The weak reading is likely to boost bets on a rate cut as early as September, which futures are currently priced as a 70% possibility.
The index, which measures the currency’s performance against six major currencies, recently reached 105.56, down from its highest level in nearly eight weeks of 105.91 touched last week.
The focus during the week will also be on politics, with the first US presidential debate taking place on Thursday and the first round of voting in the French election at the weekend.
“You will see a lot of defensive positions as the first round of the French elections and the US presidential debate approach,” said Simon Harvey, head of FX analysis at Monex.
“Although there is a calm feeling weighing on the dollar this morning, political risks remain a good source of strength for the dollar and we expect the dollar index to end the week higher.”
The euro, which has been under pressure since French President Emmanuel Macron called early elections earlier this month, rose 0.3 percent to $1.0727 but remains down 1.2 percent in June so far.
France’s far-right National Rally party and its allies are leading in the country’s first round of elections with 35.5% of the expected vote, a poll published on Sunday showed.
Jean-Philippe Tanguy, a member of parliament for the National Rally party, who is widely seen as the most likely candidate to head the Ministry of Finance if the party wins and forms a government, told Reuters that the National Rally government will adhere to the European Union’s financial rules.
Meanwhile, the spot yuan was trading at 7.26 to the dollar, near a seven-month low, weighed down by the dollar’s broad strength and concerns about weakness in the world’s second-largest economy. (CNY/)