Yen rally continues on lower US yields; Pelosi border markets

HONG KONG: The dollar continued to slide on Tuesday (August 2), falling to its lowest level in two months against the rally in the Japanese yen and losing ground against other peers, as investors continued to position themselves for a less aggressive pace of interest rate hikes from the Federal Reserve.

Concerns over the impact of an imminent visit to Taiwan by US House of Representatives Speaker Nancy Pelosi also drove safe-haven flows into the yen, while weighing on other Asian currencies.

The greenback fell as low as 130.595 yen in early trading, its lowest since June 6, and was last down 0.55%, leaving it down 4% in the past four sessions.

“It’s the same old story, with the yen being very sensitive to the spread between US and Japanese government bond yields. Of course, Japanese bonds aren’t moving because of the yield curve control policy. rates from Japan, but US yields have come down a lot,” said Redmond Wong, market strategist at Saxo Markets Hong Kong.

The benchmark 10-year Treasury yield fell to 2.53%, its lowest since April, in early trading on Tuesday. Investors are beginning to position themselves for the US Federal Reserve to move away from aggressively raising interest rates to fight inflation and become more concerned about an economic slowdown.

Wong, who said this revision to the Fed’s rate hike forecast was likely overdone, added that somewhat lower energy prices were also helping the yen, since Japan was a net importer of energy. The currency was also benefiting from some safe-haven flows due to concerns over Pelosi’s visit.

China’s offshore yuan touched 6.7957 to the dollar on Tuesday, its weakest level since mid-May. Wong attributed that in part to tensions around Pelosi’s visit as well as poor economic data from China over the weekend.

The Taiwanese dollar slipped to its lowest level in more than two years, breaking above 30 per US dollar.

The greenback was also weaker overall, with the pound at US$1.2256, just off a five-week high hit overnight, and the euro was also ahead at US$1.0294.

That sent the dollar index, which measures the greenback against six peers, to 105.03 in early trading, a month low.

Elsewhere, the Australian dollar was holding just above US$0.7 ahead of a central bank meeting in which analysts are expecting a third consecutive half-point interest rate hike.

Bitcoin was stable at US$23,250.