After a volatile overnight session, the dollar took a breather on Friday as red-hot US inflation data pointed to more aggressive interest rate hikes, while traders were on edge about intervention as the yen wallowed near a three-decade low.
The dollar index was little changed after falling 0.5% in the previous session as investors digested data showing that consumer prices in the United States rose faster than expected in September.
According to Commonwealth Bank of Australia strategist Carol Kong, temporary drop in the dollar was fueled in part by the sharp recovery in Wall Street stocks.
Wall Street indexes recovered dramatically, closing sharply higher after a sell-off earlier in the day on Thursday as investors rushed back into riskier bets.
However, the investment mood remained broadly cautious, which is likely to keep the dollar strong.
“I doubt the weaker dollar will last… the dollar is currently the safe-haven currency,” Kong is reported as saying.
The focus now shifts to the Federal Reserve policy meeting next month, where another 75-basis-point (bps) rate increase is expected.
The dollar was trading at 147.43 yen to the yen, not far from the previous session’s 32-year high of 147.665.
Investors remained on the lookout for a government intervention to shore up the shaky currency. Shunichi Suzuki, Japan’s Finance Minister, reiterated the government’s willingness to take “appropriate action” in response to excessive currency volatility.
For the first time since 1998, Japan intervened last month to purchase yen in an effort to support the battered currency.
Any future intervention, according to National Bank of Australia currency strategist Rodrigo Catril, will focus on the rate of depreciation rather than a specific target.
Amid rumours of a potential U-turn by the UK government on its economic policies, sterling last traded at $1.1309, down 0.18% on the day, reversing previous sharp gains versus the dollar.
At $0.631, the Australian dollar was up 0.22% against the US dollar from the two and a half year low it reached the previous day.