While the dollar rose ground overall on Thursday, the Japanese Yen fell to a 24-year low as investors braced for rising U.S. interest rates while expecting that Japan’s anchoring rates would remain static for some time.
- Early Asian trading saw the dollar reach a 24-year high versus the yen of 139.59, up around 0.5% from the previous day’s closing.
- On the basis of strong economic statistics, expectations are building for a 75-basis-point U.S. rate hike at the Federal Reserve meeting next month. Fed funds futures last showed a 73% chance of such an increase.
- Quoting Sean Callow, a currency strategist at Westpac in Sydney as saying, Reuters wrote, “Dollar/yen should break 140 before the September (Fed meeting). Looks like we won’t have to wait much longer”.
- Markets have priced in about a 40% chance the ECB will increase rates by 75 basis points next week, even as risks of a painful recession rise along with gas prices.
- “The high inflation and gas supply are still major issues in both the eurozone and the UK, and I think it’s going to keep downward pressure on both those currencies,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.
The Japanese Yen, known for its high stability against other currencies, is currently at a 24-year low against the dollar. Usually, a safe haven during times of market stress, the world’s third-most traded currency has seen its value erode due to increasing speculation that the Federal Reserve will raise interest rates.
As per the trade analysts, JPY is at risk of weakening further against the dollar for at least the rest of 2022. The widening interest rate differentials between Japan and elsewhere have surely added to downward pressure on the Yen.
Overall, Yen’s downward journey seems to be unstoppable, at least for as long as the Fed continues raising interest rates. On the other hand, the Euro and British Pound are likely to remain under pressure in the coming months.