Dollar pushes higher, yen sinks to 40-year low
Holograms, which show different images and colours depending on the angle at which they are viewed, are seen on the new Japanese 5,000 yen banknote in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool
NEW YORK/LONDON, June 30 : The dollar gained on Tuesday, pushing the yen to its lowest levels since 1986 and raising expectations that Tokyo may be close to direct intervention.
The U.S. dollar climbed to as high as 162.66 yen and was last up 0.4 per cent at 162.59. Japanese Finance Minister Satsuki Katayama reiterated that authorities were ready to respond appropriately at any time, though she stopped short of stronger rhetoric.
The dollar has found support as markets increasingly price in the likelihood of Federal Reserve rate hikes. U.S. inflation remains well above target, the economy continues to grow, and the Fed's latest quarterly projections show nine of 19 policymakers anticipate a rate hike by year-end.
“The dollar has strengthened further since the FOMC meeting, supported by widening growth differentials that we've started to see between the U.S. and other major economies which were amplified by higher oil prices,” said James Lord, head of FX EM strategy at Morgan Stanley. “Recent economic data points to stronger U.S. performance, particularly against the eurozone, where growth indicators have been comparatively softer.”
A buoyant U.S. equity market, fueled by optimism over artificial intelligence, has also boosted the greenback as capital flows into the United States — "reinforcing the narrative of U.S. exceptionalism," Lord said.
Thursday's June jobs report is the week's main U.S. economic event. Three consecutive months of blowout job gains have reinforced the more hawkish view on Fed policy. Economists polled by Reuters expect the report to show employers added 110,000 jobs in June, with the unemployment rate holding steady at 4.3 per cent.
Data on Tuesday showed that U.S. job openings edged up in May while hiring remained weak. U.S. consumer confidence also nudged higher in June.
Fed funds futures traders are pricing in 65 per cent odds of a Fed rate increase by September. Cleveland Fed President Beth Hammack said on Tuesday it remains possible that she’ll advocate for higher interest rates if inflation pressures don’t moderate.
Morgan Stanley, however, believes markets are pricing in a more aggressive Fed than is warranted. "We are expecting U.S. inflation to undershoot the central bank's economic projections, reducing the likelihood that the Fed will be needing to hike rates," Lord said.
The dollar index, which measures the U.S. currency against six other units, was last up 0.03 per cent at 101.17, set for a 1.3 per cent rise in the second quarter after gaining 1.6 per cent in the first three months of 2026.
YEN'S FIGHT AGAINST THE TIDE
The dollar's strength has been most acutely felt in the Japanese yen. Even after the Bank of Japan's latest rate hike, Japanese rates remain far below those in the United States, leaving a wide yield gap that favors the dollar and sustains carry trades — in which investors borrow cheaply in yen and deploy capital into higher-yielding currencies.
The dollar is on track for a 2.45 per cent gain against the yen this quarter, its fourth consecutive quarterly advance and the longest such winning streak in four years.
Japanese authorities intervened in April and May, spending 11.7 trillion yen ($72.25 billion) to prop up the currency, but that support has since faded.
"We think they'll come in again at some point," said Lee Hardman, senior currency analyst at MUFG, "though the move in April and May didn't really reverse the trend so maybe that's made them more reluctant."
He also noted that, unlike in April, this time the yen had only really been weakening against the dollar. The euro was last at 185.7 yen, elevated compared with historical levels, but still below its April record high of 187.95.
Katayama's comments overnight "avoided the verbal escalation that often precedes a buying effort, instead reiterating that authorities stand ready to respond at any time," said Karl Schamotta, chief market strategist at Corpay.
That may make a near-term intervention less likely. Even so, he noted that Thursday's payrolls report and Friday's Independence Day holiday — when U.S. liquidity thins dramatically — could offer opportunities "to wrong-foot speculative short positions."
Most U.S. markets will close Friday for Independence Day, with foreign exchange trading volumes expected to be light.
The euro edged up 0.02 per cent to $1.1422, not far from the one-year low it hit last week. As well as being on the other side of the strong dollar, on Tuesday the currency was also digesting cooler inflation data from France, Italy and major German states.
The European Central Bank raised rates earlier this month and markets expect another hike by year-end, though slowing inflation and a fragile economy could yet change that calculus.
Sterling weakened 0.02 per cent to $1.3256.
In cryptocurrencies, bitcoin was down 3.12 per cent at $58,342, approaching last week's low of $58,076, which if broken would send it to the weakest level since September 2024.
