TOKYO- The dollar hung close to a 32-year peak versus the yen on Wednesday while edging up from a two-week trough against a basket of major peers as traders weighed improved risk sentiment against the prospect of aggressive Federal Reserve rate hikes.
Sterling consolidated in the middle of its trading range this week as the market digested the British government’s fiscal policy reversal and the Bank of England’s decision not to sell any longer-duration gilts this year. The euro hovered close to a two-week high.
The dollar pushed as high as 149.395 yen overnight for the first time since August 1990, before last trading at 149.18 early in Wednesday’s Asian session.
Traders are on high alert for the Ministry of Finance and Bank of Japan to step into the market again, as the currency pair pushes toward the key psychological barrier at 150. A cross of 145 about a month ago spurred the first yen-buying intervention since 1998.
Japanese Finance Minister Shunichi Suzuki said on Wednesday that he was checking currency rates “meticulously” and with more frequency, local media reported.
The dollar, which currently reigns as the safe-haven currency of choice, has sagged this week amid the bear rally in equities globally following some upbeat earnings.
But underlying support continues to come from market pricing for two more 75 basis point hikes from the Fed this year as it focuses on red-hot inflation, even at the risk of sparking a recession.
Fiscal uncertainty in Britain is also clouding the outlook for bond markets globally.
The dollar index – which measures the currency against six peers including the yen, sterling and euro – edged up to 112.01, after dropping to the lowest since Oct. 6 at 111.76 overnight. It marked a multi-decade peak at 114.78 at the end of September.
“We doubt that this is more than a modest pause in the dollar’s bull run,” said Sean Callow, a currency strategist at Westpac in Sydney, who expects a retest of the peak into November.
