Written by Amanda Cooper
LONDON (Reuters) – The dollar fell below a key 160 yen level on Tuesday, as fears of interference by Japanese officials kept traders from severely punishing the yen against any other currencies.
Elsewhere, analysts said bitcoin recovered some of its losses after its worst day in more than two months at the start of the week, partly due to outflows from exchange-traded funds (ETFs).
The dollar fell 0.1% in latest trading to 159.43 yen, holding onto a narrow range, as traders remained wary of testing the level that prompted Tokyo into a 9.79 trillion yen ($61.33 billion) currency intervention in late April and early May.
This kept the yen under control and prevented it from recording new lows against other currencies, as the pound remained slightly below the highest level in 16 years at 202.34 yen.
“The market is showing… that they are nervous, that they are very nervous about this situation,” said Chris Weston, head of research at Pepperstone.
“There are inherent risks in selling the Japanese yen now as a carry trade, which is of course what (the authorities) want to see.
“The first point of call is to tell currency speculators and people who are holding their money that you are aware, if you hold these positions now, you run the risk of a 400 or 500 pip drop in the dollar/yen.”
The recent decline in the yen came on the back of the Bank of Japan’s monetary policy meeting in June, where policymakers disappointed investors who were betting on an immediate reduction in the Bank of Japan’s massive bond purchases.
Minutes from the meeting released on Monday showed that the central bank discussed the possibility of raising interest rates in the near term, with one policymaker calling for an increase “without significant delay.”
In the broader market, the dollar fell slightly ahead of the release of the US personal consumption expenditures price index on Friday – the Federal Reserve’s preferred measure of inflation.
The British pound rose 0.1% to $1.2691, while the Australian dollar settled at $0.6656.
The pound was also under pressure, falling to 7.2626 to the dollar, within sight of the central bank’s minimum daily trading limit of 7.265 on Tuesday.
The yuan has never crossed this threshold.
Politics in focus
Politics was also at the forefront of investors’ minds, with the first US presidential debate between President Joe Biden and his predecessor Donald Trump scheduled for Thursday and the French election set to begin this weekend.
The euro, which has come under pressure amid political turmoil in France following President Emmanuel Macron’s surprise call for early elections earlier this month, fell 0.1% to $1.0721, heading for a 1% monthly loss.
However, it has still traded in the $1.07-$1.08 range for most of this year.
“It increasingly looks to me that it would be a big surprise to move the interest rate out of this range in a sustainable way,” said Volkmar Bauer, strategist at Commerzbank (ETR):
On the markets front, Bohr pointed to Friday’s US core inflation numbers as a potential catalyst and next week’s German and French inflation data as another catalyst.
On the political level, Power pointed out that the elections that took place on Sunday in France are only a first round of voting, and that the results “must differ significantly from the opinion polls” in order to have a significant impact.
The dollar settled at 105.51 against a basket of currencies.
In cryptocurrencies, bitcoin rose 3.1% to $61,348, recovering some of the previous day’s 6.65% decline that was driven by sustained investment outflows.
“We’ve seen a pullback, and we’ve seen six straight days of money coming out of bitcoin cash ETFs,” Pepperstone’s Weston said.
“To me, it’s…a momentum tool, and momentum works in both directions. If it’s going in one direction and the rate of change is going up, to me, you have to stand back and let the selling happen so you can form the base and now, the momentum is on the side.” Negative.”
($1 = 159.6300 yen)
