Image: Reuters Berita 24 English - On Wednesday, as investors once again became concerned about the prospects for global growth, the safe-h...
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| Image: Reuters |
Berita 24 English - On Wednesday, as investors once again became concerned about the prospects for global growth, the safe-haven dollar gained ground over most of its rivals, and the yen hit a new 24-year low as high bond yields in the U.S. and Europe contrasted with low Japanese interest rates.
A move away from riskier assets that also saw a stock market surge melt out caused the euro to decline by 0.3 percent to $1.0493, and sterling was down by 0.4 percent to $1.2228 ahead of British consumer price data. [MKTS/GLOB]
As Britain, like most developed economies, struggles with extremely high inflation, a higher CPI figure would put even more pressure on the Bank of England to continue hiking rates.
The commencement of U.S. Federal Reserve Chair Jerome Powell's two-day appearance before Congress is the other major event on Wednesday. Investors will be watching for additional cues about whether another rate hike of 75 basis points is likely at the Fed's July meeting.
At 104.7, the dollar index was up 0.3 percentage points.
After hitting 136.71 in early trade, its lowest level since October 1998, the yen was last floating at 136.1 per dollar, higher on the day.
Analysts predict that the yen's sell-off, which has seen it fall 18 percent from 115.08 at the end of 2021, will continue for some time.
The yen has been declining as a result of the strain that rising energy prices are having on Japan's current account as well as the widening yield differential between Japanese and U.S. Treasury bonds.
The yield on the 10-year Japanese government bond is effectively capped at 0.25 percent thanks to the Bank of Japan's policy of yield curve control (YCC), which it committed to uphold last week.
According to Redmond Wong, market strategist at Saxo Markets Hong Kong, "Dollar/yen is still trading on Treasury rates, which have been consistent but with the 10-year holding above the 3.20 percent barrier while the Bank of Japan has done a lot to defend YCC."
A change in that policy, which is producing turbulence in the Japanese bond market, was predicted by some investors to increase the yen's strength and increase the yield on Japanese government bonds.
These positions are now being unwound or reversed, according to Wong, with some people betting the yen would continue to decline because the BOJ did not alter its policy at its meeting last week.
Low commodity prices, such those for iron ore, continued to weigh on the Australian dollar, which dropped 0.7 percent to $0.6919 as a result of the risk-off environment.
Following recent dips, Bitcoin stood at $20,600 and was finding it difficult to get over the symbolic $20,000 mark in either direction.
