Dollar Rally Seen Removing Yen Intervention Quandary for G-7

  • Greenback has climbed more than 3% from 18-month low vs yen
  • Fed signaling ‘two hikes still a go this year’: BNY Mellon

The dollar’s rally against the yen toward its first monthly gain since January is cooling speculation that Japan will seek clearance from the Group of Seven for intervention to weaken its currency.

Japanese Finance Minister Taro Aso said G-7 officials will discuss currencies as needed at meetings on May 20-21, while a U.S. Treasury official said currency moves have been orderly and that Treasury Secretary Jacob J. Lew will emphasize nations’ foreign-exchange commitments at the talks in Sendai, Japan. The yen has slumped 3.8 percent from its recent 18-month high amid intervention rhetoric.

The upswing in the greenback comes as data on U.S. retail sales and consumer confidence show the world’s largest economy is recovering from a soft patch, according to Brown Brothers Harriman & Co. A report today is forecast to show inflation accelerated in April.

“The Japanese way would not be to intervene ahead of the G-7 meetings or the summit the following week, and volatility isn’t all that great -- it’s becoming more of a two-way market,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in an interview with Bloomberg’s Angie Lau on "First Up." “The U.S. dollar is coming back and that’s where it will be for the second half of the second quarter and into the third quarter.”

The dollar jumped 0.5 percent to 109.55 yen as of 6:55 a.m. in New York, after falling to as low as 105.55 on May 3, and is up 2.9 percent this month. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, has risen 2.4 percent in May and was little changed Tuesday.

Aussie’s Gain

Australia’s dollar was among the biggest gainers versus the U.S. currency, rising 0.5 percent to 73.26 U.S. cents. Minutes of the latest Reserve Bank of Australia meeting suggested policy makers will hold off on cutting interest rates while they assess the impact of the easing announced two weeks ago.

U.S. consumer prices rose 1.1 percent in April from a year earlier, economists surveyed by Bloomberg predicted before a Labor Department report, after a 0.9 percent gain the previous month. Annual core inflation, excluding food and fuel, is seen slowing to 2.1 percent from 2.2 percent.

Investors will also be focused on comments from Federal Reserve officials John Williams and Dennis Lockhart, both non-voting members of the Federal Open Market Committee who are due to speak today in Washington on the U.S. economic outlook. Markets will be watching for any hint about when the U.S. central bank will next raise interest rates.

“We’re seeing a bit of a move higher in the dollar" which may be due to recent comments by Fed officials who are "maintaining that two hikes is still a go this year,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. That’s in spite of the last set of Fed minutes referring to the outlook for “soft near-term inflation,” he said.

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