The US Dollar gained ground in Asian trading on Friday, keeping the Japanese Yen close to a multi-decade low as uncertainty persisted over a potential peace agreement between the United States and Iran.
At the same time, investors increasingly speculated that additional government intervention could be required to halt the Yen’s ongoing decline.
After initially strengthening, the Yen gave up its gains and was trading virtually unchanged at 161.455 per Dollar, moving nearer to its weakest level in two years.
The Dollar Index, which tracks the greenback’s performance against a basket of six major currencies, climbed 0.3% to 101.07, its highest level in a year, Reuters reports.
Elsewhere, the British Pound fell 0.2% to $1.3174, broadly tracking declines across other major currencies. It showed little reaction after Greater Manchester Mayor Andy Burnham secured victory in the Makerfield by-election, a result that is expected to strengthen his position for a potential leadership challenge against Prime Minister Keir Starmer within the governing Labour Party.
Meanwhile, the Japanese Yen continued to struggle despite efforts by authorities to support the currency. Earlier this year, Japan’s Ministry of Finance intervened in the foreign exchange market by selling US Dollars, and the Bank of Japan raised interest rates to their highest level in 31 years on Tuesday.
However, these measures have provided only limited support for the Yen, which remains under significant pressure.
Concerns over Japanese Prime Minister Sanae Takaichi’s spending proposals have weakened investor confidence, leading to speculation that authorities may be forced to intervene again to support the Yen.
Furthermore, Japan’s annual core inflation remained below the Bank of Japan’s 2% target for the fourth consecutive month in May, according to data released on Friday. The moderation was partly driven by government fuel subsidies, which helped offset higher import and raw material costs stemming from the conflict in the Middle East.
Minutes from the Bank of Japan’s April meeting, released on Friday morning, along with remarks from Deputy Governor Ryozo Himino, signalled that further interest rate increases could be on the table if inflationary pressures from the Iran conflict persist.
The Dollar has gained strength this week as traders have revised expectations, increasingly betting that the Federal Reserve could tighten policy sooner than previously anticipated in order to control inflation, potentially as soon as next month.
According to CME Group’s FedWatch tool, Fed funds futures are now pricing in a 39.6% chance of a 25-basis-point rate hike at the Fed’s upcoming two-day July meeting, a sharp increase from just 8% a week earlier.