FX markets have quietened down a touch this morning. This follows a particularly hectic week or so, which saw the cash Dollar Index slice through significant resistance at 100.00, only to soar above 101.00 to hit a thirteen-month high yesterday afternoon.
The US dollar strengthened against all the majors. But its most devastating effect came against the Japanese yen. This pushed the USD/JPY up to within a few cents of 162.00, to trade at levels last seen in early July 2024. This was just before Japan intervened to support its currency. This move was moderately successful in that the USD/JPY fell steadily over the next two months until it briefly broke below 140.00.
It then rebounded, coming close to 159.00 three months later. But there was another intervention in late April this year, which was an unmitigated failure. It took about a week for the USD/JPY to drop from 160.70 to 155.00.
Source: TN Trader
Yet less than two months later, the USD/JPY flew past April’s intervention high, with the yen at its weakest in nearly two years. What now? Well, Japan’s Ministry of Finance has threatened and cajoled to get traders to ‘play nice’. But so far, no good.
It is understood that Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent have agreed to coordinate on currency issues if necessary. That is thought to be behind the odd price wobble in the pair on Monday afternoon. So, for traders, it’s still a game of chicken. For now, they continue to taunt policymakers, just daring them to have a go.
Meanwhile, the US dollar is taking a well-earned rest after its recent rally. It shouldn’t be surprising to see some kind of corrective pullback now. But if the cash Dollar Index finds support at 101.00 or even 100.00, then there could be more upside to come, particularly given the Fed’s newfound hawkishness.
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