On Wednesday, the dollar hovered near a one-month low against the euro, influenced by lower Treasury yields as traders awaited a crucial U.S. inflation report that could shape Federal Reserve policy. Meanwhile, the yen remained close to a two-week low due to a significant yield gap between local bonds and their U.S. counterparts, which continued to drive selling of the Japanese currency.
The yuan fell to a two-week low against the dollar following U.S. President Joe Biden's announcement of substantial tariff increases on various Chinese imports, including computer chips, escalating tensions with Beijing.
The euro slipped 0.04% to $1.0814 during early Asian trading, staying near the previous night's high of $1.09255, a level last reached on April 10. The U.S. dollar index, which measures the dollar against six major currencies and is heavily weighted towards the euro, remained flat at 105.04 after dropping to a 1.5-week low of 104.95 on Tuesday.
The benchmark long-term U.S. Treasury yield was largely unchanged at 4.4472% following a 3.5 basis point decline overnight.
The core consumer price index (CPI) report expected on Wednesday is anticipated to show a 0.3% month-on-month increase in April, down from 0.4% the previous month, according to a Reuters poll.
On Tuesday, Fed Chair Jerome Powell provided an optimistic assessment of the U.S. economy, predicting continued above-trend growth and expressing confidence in decreasing inflation, despite recent data suggesting otherwise. Higher-than-expected consumer prices in the first quarter had led to significant adjustments in the expected pace of Fed rate cuts, now reduced to about 45 basis points of reductions for the year.
Despite the dollar's overall weakness against most currencies overnight, it continued to rise against the yen, gaining 0.06% to 156.535 yen on Wednesday, after reaching 156.80 overnight. In contrast, Japanese long-term yields remain at just 0.96%, despite increasingly hawkish rhetoric from the Bank of Japan and growing expectations for another rate hike in June.
The dollar's climb to a 34-year peak of 160.245 yen on April 29 triggered two rounds of aggressive yen buying, which traders and analysts suspect were driven by the Bank of Japan and the Japanese finance ministry. "The BOJ will hope that tonight's U.S. CPI release aligns with expectations to avoid a difficult discussion tomorrow about the timing of a potential third round of intervention, considering that the previous two rounds have yet to reverse the yen's decline," noted Tony Sycamore, an analyst at IG, in a client note.
The dollar was at 7.2409 yuan in offshore trading after slipping to a low of 7.2460 overnight. The Biden administration's imposition of steep tariffs on Chinese products, including chips, electric vehicle batteries, and medical equipment, prompted an immediate pledge of retaliation from Beijing. Reuters had reported on the impending tariffs last week.
Elsewhere, the Australian dollar rose to a one-week high of $0.6630 on Wednesday, while the New Zealand dollar reached a more than one-month high of $0.6051. Cryptocurrency bitcoin remained largely unchanged at $61,636.
Paraphrasing text from "Reuters" all rights reserved by the original author.
