Dollar holds firm, yen slides as US rate-cut bets recede

FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Tom Westbrook

SINGAPORE (Reuters) -The dollar steadied on Monday, holding its biggest weekly gain since 2022, as escalating conflict in the Middle East and the prospect of stubbornly high U.S. interest rates gave support.

The dollar went up 1.6% against a basket of six major currencies last week after a small but unnerving upside surprise in U.S. inflation cast doubt over bets on U.S. rate cuts, while European policymakers signalled a cut within a few months.

It made a five-month top on the euro on Friday and traded near those levels early in the Asia day, buying a euro for $1.0655.

The yen was the main loser on Monday, marking a 34-year low at 153.85 to the dollar.

The yen’s slide against the dollar has revived anticipation of currency intervention. Japanese Finance Minister Shunichi Suzuki said he was watching currency moves closely, and that Tokyo is “fully prepared” to act.

The initial reaction in currencies seemed to be based more on the receding Federal Reserve rate cut expectations than a weekend attack on Israel by Iran, which caused stock markets, bitcoin and oil to drop [MKTS/GLOB].

Iran had warned of a strike on Israel and over the weekend launched drones and missiles in retaliation for what it said was an Israeli attack on its Damascus consulate. It caused modest damage and Iran said it now “deemed the matter concluded”.

Two senior Israeli ministers signalled on Sunday that retaliation was not imminent and that Israel would not act alone, leaving the region on edge over the risk of a broader war, while financial markets were in wait-and-see mode.

“It is too early to judge,” said Jason Wong, senior market strategist at BNZ in Wellington. “It was really a symbolic attack over the weekend … never really designed to inflict much damage – it’s now over to what Israel’s response will be.”

Investors have slashed bets on Fed cuts and pushed back the start of the easing cycle to September after Wednesday’s hotter-than-expected consumer price (CPI) report.

“It is a data-light week so all eyes will turn to Fedspeak where more than a dozen voting members on the FOMC are likely to emphasise patience after last week’s blowout CPI print,” said Nicholas Chia, Asia macro strategist at Standard Chartered Bank.

The two-year Treasury yield surged past 5% on Thursday. The yield was last at 4.92%.

The euro recorded its biggest weekly percentage drop since late September 2022 last week while sterling had its largest weekly percentage drop since mid-July.

The decline in currencies of its trading partners meanwhile pushed the value of China’s trade-weighted currency index to a March 2023 high of 100.32, implying it is losing competitiveness.

Bitcoin fell below $62,000 on Sunday, losing $10,000 or 15% from highs a week ago. It was last up at $65,343.

Currency bid prices at 0514 GMT

Description RIC Last U.S. Close Pct YTD Pct High Bid Low Bid

Previous Change Change

Session

Euro/Dollar $1.0652 $1.0642 +0.11% -3.49% +1.0655 +1.0630

Dollar/Yen 153.810 153.2450 +0.36% +9.04% +153.8400 +153.1900

0

Euro/Yen 163.84 163.08 +0.47% +5.28% +163.8600 +162.9400

Dollar/Swiss 0.9142 0.9144 -0.01% +8.64% +0.9147 +0.9115

Sterling/Doll 1.2461 1.2449 +0.06% -2.11% +1.2465 +1.2442

ar

Dollar/Canadi 1.3756 1.3774 -0.13% +3.77% +1.3781 +1.3754

an

Aussie/Dollar 0.6486 0.6463 +0.35% -4.88% +0.6488 +0.6455

NZ 0.5946 0.5935 +0.19% -5.89% +0.5953 +0.5929

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook and Vidya Ranganathan; Editing by Christopher Cushing and Jacqueline Wong)