TOKYO- The dollar sank to a three-week trough against the yen on Monday as Federal Reserve Chair Jerome Powell’s emphatic dovish shift contrasted sharply with Bank of Japan chief Kazuo Ueda’s steadfastly hawkish tone.
The US currency hovered near its lowest in 13 months against the euro, and sagged closer to levels last seen in March 2022 versus sterling, with Bank of England head Andrew Bailey’s comments that it was “too early to declare victory” over inflation signaling a less aggressive stance on interest rate cuts than the Fed.
The dollar slumped as much 0.66 percent to 143.45 yen for the first time since Aug. 5 before trading down 0.31 percent.
Sterling eased slightly to $1.31995 after jumping as high as $1.32295 on Friday for the first time in 17 months.
Although Fed officials had sounded increasingly dovish in the lead up to the Fed’s annual Jackson Hole symposium, Powell on Friday “used stronger language” than his peers when delivering his keynote speech, said Tapas Strickland, head of market economics at National Australia Bank.
“Importantly, there was a notable absence of caveats such as ‘gradual/gradualism’,” effectively keeping the door open to larger rate-cut increments, which “is likely what excited markets,” Strickland said.
Earlier Friday, in parliamentary testimony in Tokyo, Ueda “stuck to the script of the BOJ needing to adjust the degree of easing — central bank-speak for a further increase in the policy rate from a low level — and he played down the significance of the July rate hike on market turmoil,” Strickland said.
Many market participants anticipated Ueda might strike a less hawkish tone in the special session of parliament, which was called amid criticism the surprise hike last month helped spark a rapid unwind of bearish yen bets and aggressive sell-off of Japanese stocks.
