Forex: Yen tumbles from two-week high, dollar bounces

Tokyo: The yen retreated sharply from its highest point in nearly two weeks on Friday, with the Bank of Japan likely to keep its ultra-easy policy, defying pressure from aggressive tightening at peers including the Federal Reserve and Swiss National Bank.

The dollar clawed its way back from a one-week low against major peers, following a two-day slide after the Federal Reserve’s mid-week rate increase that, although the biggest since 1995, didn’t exceed market expectations.

The dollar index, which measures the currency against six peers including the yen, rose 0.16 per cent to 104.05, slipping to the lowest since June 10 at 103.41 overnight. It was at a two-decade high of 105.79 prior to the Fed decision.

The greenback jumped 0.82 per cent to 133.235 yen after dipping overnight to 131.49 for the first time since June 6.

US long-term yields, which bear a close correlation with the dollar-yen rate, ticked up in Tokyo trading, after dipping sharply during US hours as investors worried that aggressive Fed tightening could trigger a recession.

On Wednesday, Fed Chair Jerome Powell said that a 75 basis point increase seemed the appropriate policy action for that meeting, but that it wouldn’t be the norm. Even so, another increase of the same size is widely expected for next month’s meeting as well.

“The slippage in US yields and recession talk has undercut the DXY last couple days,” Westpac analysts wrote in a client note, referring to the dollar index. “DXY slippage can extend to 102 near term, but the broader bull trend is not done, not with another 75bp Fed hike on the table in July.” The dollar bounced 0.3 per cent to 0.96905 Swiss franc, after tumbling the most in seven years overnight as the Swiss National Bank surprised with a half point hike.

Sterling slipped 0.27 per cent to $1.2318, giving back a fraction of its 1.43 per cent jump overnight, when the Bank of England decided to lift rates again, albeit by less than many in the market had expected, but gave hawkish signals on future policy action.

The euro slipped 0.17 per cent to $1.0537, coming off a one-week high from overnight, as it garnered support from the European Central Bank’s decision mid-week on fresh support to contain borrowing costs among southern nations.

Elsewhere, the risk-sensitive Aussie dollar fell 0.26 per cent to $0.70275 as Asian stock markets followed Wall Street lower.

Leading cryptocurrency bitcoin continued to languish near a 1 1/2-year low of $20,079.72 reached this week, last changing hands at $20,500.00.