US dollar retreats after mixed batch of data; yen modestly firmer

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar fell on Wednesday, tracking the pullback in U.S. Treasury yields, amid a mixed set of data suggesting that there are pockets of weakness in the world’s largest economy, further diminishing the odds of another interest rate hike by the Federal Reserve before the end of the year.

The yen, on the other hand, was slightly firmer against the greenback, moving away from the closely watched 150-per dollar mark, as a short-lived surge in the previous session stoked speculation that Japanese authorities may have intervened to support the currency.

The dollar index, which tracks the greenback against six peers, was down 0.3% at 106.69, giving up some of its recent gains, after weaker-than-expected U.S. private payrolls based on the ADP National Employment Report. The index, however, remained within striking distance of a nearly 11-month high of 107.34 reached in the previous session.

The dollar did retrace some of its losses after U.S. factory orders gained 1.2% in August, compared with expectations of a 0.2% rise. That more than offset the moderate decline in a U.S. services sector index last month.

“This morning’s services sector data helped soften expectations ahead of Friday’s non-farm payrolls report, and we’ve seen a slight pullback in odds on another rate hike from the Federal Reserve before year-end,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.

“More broadly, the surge in Treasury yields, and the corresponding dollar rally, seems to be reaching exhaustion.”

The Japanese currency was last flat on the data at 149.04 per dollar, after unexpectedly surging nearly 2% at one point on Tuesday to 147.30, its strongest in three weeks. The spike came after it slipped to 150.165 per dollar, its weakest since October 2022.

“Dollar/yen is now trading pretty close to levels we saw just three sessions ago, which tells me yesterday’s move was not, in fact, an intervention,” said Helen Given, FX trader, at Monex USA in Washington. “I see an overwrought market reaction to touching that psychological 150 figure.”

Japan’s top currency diplomat, Masato Kanda, said he would not comment on whether Tokyo intervened in the exchange rate on Tuesday, although he said, “We have only taken steps that have the understanding of U.S. authorities.”

The Bank of Japan’s money market data, however, showed on Wednesday Japan likely did not intervene in the currency market a day earlier.

Japanese authorities last year intervened to prop up the yen for the first time since 1998.

The currency has slumped around 12% against the dollar this year as U.S. bond yields have risen sharply compared to their Japanese peers as the Fed has hiked interest rates.

On Wednesday, longer-dated Treasury yields eased from 16-year highs, after 30-year yields briefly rose above 5% overnight.

Elsewhere, the euro rose 0.5% to $1.0515, not that far from Tuesday’s low of $1.0448, its weakest since December, triggering talk of a fall back to $1. It rose even as data showed euro zone retail sales fell much more than expected in August and that the bloc’s economy probably shrank last quarter.

Sterling climbed 0.6% to $1.2149, rebounding after falling to a nearly seven-month low of $1.2038.

The New Zealand dollar fell after its central bank held the cash rate steady at 5.5%, as policymakers grew more confident past hikes were working to bring down inflation. That sent the New Zealand unit sliding to a nearly one-month low of US$0.5871. It last traded up 0.2% at US$0.5916.