The dollar is on the defensive despite decreasing yields

3 Jul 2024 , 10:25 AM

The dollar remained under pressure on Wednesday as Federal Reserve Chair Jerome Powell’s dovish comments pushed U.S. bond yields lower, overshadowing a positive domestic jobs data.

The euro remained solid, aided by a stubbornly high local inflation rate on Tuesday. Sterling held stable ahead of Thursday’s UK election.

However, the yen remained near to a 38-year low against the dollar, owing to the heightened chance of a second Donald Trump administration, which would likely result in higher long-term Treasury yields.

The dollar index, which measures the currency against the euro, sterling, yen, and three other major peers, was little changed at 105.66 early in the Asian session, after a 0.14% decline in the previous session.

The euro remained unchanged at $1.0749, trading around the top of its range since mid-June.

Sterling maintained steady at $1.2689 after increasing 0.28% on Tuesday.

The yen stood at 161.54 per dollar, after falling to its lowest level since December 1986 on Tuesday at 161.745.

Traders are on high alert for another wave of government Japanese intervention, after the Bank of Japan and the Ministry of Finance spent approximately 9.8 trillion yen ($60.67 billion) between late April and early May, when the currency fell to 160.82 per dollar. Some suggested that regulators might intervene on Thursday, when weak liquidity owing to a US vacation would intensify market movements.

Yields have dropped this week, with Fed Chairman Powell declaring at a European Central Bank conference in Sintra, Portugal, on Tuesday that the US economy has made good progress on inflation, while also stating that more supportive evidence is required to begin decreasing interest rates.

The 10-year Treasury yield fell to 4.4336% in Tokyo hours, following reaching 4.4930% earlier in the week.

Job opportunities in the United States climbed in May after falling dramatically in the previous two months, according to figures released tonight. The much expected monthly payrolls data is due this Friday.

Meanwhile, eurozone inflation fell last month, but a key services component remained stubbornly high, raising concerns that domestic pricing pressures could remain elevated.

The Australian dollar jumped 0.11% to $0.6675, boosted by better-than-expected retail sales figures.

China’s yuan remained close to its lowest level since mid-November, indicating that local authorities are willing to tolerate its slide. In offshore trading, the yuan remained unchanged at 7.3077 per dollar, just shy of Tuesday’s low of 7.3094.

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