The dollar has surged to a five-month peak against the pound and euro as a result of better-than-expected U.S. retail sales.
This uptick in sales has led to increased Treasury yields, prompting concerns about possible intervention from Tokyo, particularly as the yen is currently at its lowest level since 1990.
Recent data showed that U.S. retail sales increased by 0.7% last month, surpassing the 0.3% forecasted by economists. This positive outcome has strengthened the belief that the Federal Reserve is unlikely to hastily reduce interest rates this year.
Kenneth Broux, the head of corporate research at Societe Generale, highlighted that the U.S. economy is growing steadily above the long-term trend, supporting higher U.S. bond yields and contradicting the idea of an imminent interest rate cut by the Fed.
Market speculations now suggest a 41% likelihood of a Fed rate cut in July, down from around 50% prior to the data release. Investors are eagerly awaiting comments from Federal Reserve Chair Jerome Powell later in the day, his first since the unexpected U.S. inflation data last week.
The euro weakened to $1.0615, its lowest since November 2, following signals from the European Central Bank regarding a potential rate cut in June. Similarly, the British pound dropped to $1.2438, hitting a five-month low of $1.2409, after reports of subdued core wage growth in the UK.
Moreover, the U.S. dollar index climbed to 106.43, marking its highest point since November 2, reflecting the strength of the dollar against major currencies.
In Asia, the yen remains a focal point as it approached 154.45 per dollar, its weakest level in 34 years. There are concerns about potential yen-buying intervention by Japanese authorities, especially given the heightened bets by hedge funds against the currency.
Japanese Finance Minister Shunichi Suzuki stated that he is closely monitoring currency movements and will act decisively if necessary. However, experts caution that while intervention may temporarily slow down a currency’s depreciation, it is not a sustainable solution in the long term.
The persistent rise in U.S. bond yields poses a challenge for Asian currencies, with the U.S. benchmark 10-year yield at 4.63% and Japan’s 10-year yield at 0.865%. As a result, emerging Asian currencies are experiencing multi-year or multi-month lows in their exchange rates.
Despite beating expectations, the Chinese yuan edged lower against the dollar, with the onshore yuan reaching 7.2422 per dollar, its lowest since November. The Australian dollar also dipped to $0.6418, hitting its lowest level since November 14.
Overall, the global currency market remains dynamic and responsive to economic data releases, monetary policy signals, and geopolitical developments, shaping the exchange rates between major currencies.
