The Japanese yen saw extended losses, with the USDJPY pair hitting new 34-year highs before a Bank of Japan meeting on Friday. The currency pair also blew past a level that traders had widely expected to elicit intervention from the Japanese government.
The USDJPY pair surged past the 155 level in overnight trade, and steadied around 155.44 in Asian trade.
Traders had widely expected 155 to act as a threshold for currency market intervention by the Japanese government. But officials only continued with their verbal warnings, while sustained gains in USDJPY indicated little action had been taken.
Weakness in the yen put an upcoming BOJ meeting squarely in focus.
The central bank is widely expected to keep interest rates unchanged on Friday, following a historic rate hike in March.
But recent weakness in the yen, coupled with expectations of higher wages and stickier inflation put traders on guard over any hawkish signals from the BOJ.
The BOJ could potentially hike its inflation outlook and reiterate plans to raise interest rates further this year- a scenario that could potentially boost the yen.
But just how much the yen will recover remained uncertain, given that the biggest point of pressure on the yen- ie- fears of higher-for-longer U.S. interest rates- still remained in play.
The dollar index and dollar index futures steadied in Asian trade after recovering mildly in overnight trade.
The greenback remained close to over five-month highs hit last week, as traders steadily priced out expectations of early interest rate cuts by the Federal Reserve.
Economic data due this week was set to provide more cues on the path of interest rates. First quarter U.S. gross domestic product data is due later on Thursday, and will show just how resilient the U.S. economy was in the beginning of 2024.
More closely watched will be PCE price index data- the Fed’s preferred inflation gauge- which is due on Friday.
Anticipation of the data kept most Asian currencies on the backfoot. The South Korean won’s USDKRW pair moved little even as GDP data showed the economy grew much more than expected in the first quarter.
The Singapore dollar’s USDSGD pair fell 0.1%, while the Chinese yuan’s USDCNY pair tread water amid a series of strong fixes by the People’s Bank.
The Indian rupee’s USDINR pair hovered below record highs hit earlier in April, with traders remaining wary of the currency with India’s 2024 general elections set to begin this week.
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