Dollar stabilizes after statements by Federal Reserve officials

The dollar was broadly stable on Wednesday, keeping the yen close to its lowest levels in 34 years, after comments from Federal Reserve officials, including Chairman Jerome Powell, indicated that interest rates would likely remain high for a longer period.

Senior US central bank officials, including Powell, on Tuesday declined to provide any guidance on when interest rates might be cut, saying instead that tight monetary policy should last longer, dashing investors’ hopes for significant easing this year.

These comments came on the heels of a series of data in the past few weeks that highlighted the strength of the US economy coupled with persistent inflation.

The dollar was broadly stable, and the euro recorded $1.062 in Asian trading, which is not far from the lowest level in five and a half months of $1.06013 that it touched on Tuesday. Against a basket of currencies, the dollar recorded a latest reading of 106.33, slightly below the five-month peak of 106.51 that it touched on Tuesday.

Powell’s comments quashed any lingering expectations of the Federal Reserve cutting interest rates in the near term.

Traders now expect cuts of 41 basis points in 2024, well below the 160 basis points expected at the beginning of the year.

Comments indicating that higher rates will last longer helped push Treasury yields higher.

The yen, which is highly sensitive to US bond yields, remained stuck at levels last seen in 1990, with the Japanese currency approaching the level of 155 against the dollar, which traders fear would lead to intervention by the Japanese authorities.

In the latest trading on Wednesday, the yen recorded 154.65 to the dollar, after touching the lowest level in 34 years at 154.79 in the previous session. The Japanese currency has fallen about nine percent against the dollar this year.

The last time Japan intervened in the currency market was in 2022, when it spent an estimated $60 billion to defend the yen.

As for other currencies, the pound sterling recorded in the latest transactions $1.2425, rising 0.01 percent during the day, but it remained close to the lowest level in five months at $1.24055, which it touched on Tuesday.

The Australian dollar rose 0.12 to $0.641, while the New Zealand dollar rose 0.22 to $0.589.