Dollar at 10-month high, yen weakens amid intervention watch

By Karen Brettell

NEW YORK (Reuters) – The dollar index hit a 10-month high on Tuesday while the Japanese yen came closer to the key 150 level, where Japanese officials are seen as potentially intervening to shore up the currency.

Benchmark 10-year U.S. government bond yields have jumped to 16-year highs this month as economic data remains robust despite higher interest rates.

The Federal Reserve last Wednesday said that it may hike rates further and was likely to keep them elevated for a longer time as it battles to bring inflation closer to its 2% annual target.

“The story of September has been the jump in Treasury yields and the spillovers into the currency market,” said Adam Button, chief currency analyst at ForexLive in Toronto. “The market has expected the economic data to deteriorate and it hasn’t.”

Minneapolis Fed President Neel Kashkari said on Tuesday that a “soft landing” for the U.S. economy is more likely than not, but added that there is a 40% chance that the Fed will need to raise interest rates “meaningfully” to beat inflation.

“It’s just exceptionalism in the U.S., it’s very hard to argue with. We’re just seeing that consistently strong data there,” said Joe Tuckey, head of FX analysis at broker Argente. “The dollar is just a steamroller.”

The dollar index rose 0.26% on the day to 106.21, the highest since Nov. 30. The euro fell 0.23% to $1.0567, the lowest since March 16.

Data on Tuesday showed that sales of new U.S. single-family homes fell more than expected in August as the rate on the popular 30-year fixed mortgage jumped above 7%, but U.S. annual home price growth accelerated for a second straight month in July.

U.S. consumer confidence also fell for a second straight month in September amid worries about higher prices and the political environment.

The Japanese yen has suffered amidst the broad dollar rally, raising speculation that Japanese officials will intervene in the currency.

Finance Minister Shunichi Suzuki on Tuesday said the government was “watching currency moves with a high sense of urgency”, after the yen hit an 11-month low of 149.19.

The yen bounced after Suzuki’s comments, but later in the day weakened back to 149.08.

The British pound fell 0.45% to $1.2158, the lowest since March 17.