Dollar Rally Unwinds on Fed Whiplash as Yen Probes 100 Threshold

The Rate Woes That Stretch From Japan to Europe
  • Greenback struggles to climb from three-month low versus peers
  • There’s growing skepticism Japan will intervene to weaken yen

The dollar dropped below 100 yen for the second time this week, undermined by the minutes of the Federal Reserve’s July meeting, which showed officials were divided over the urgency to raise interest rates.

A gauge of the greenback struggled to extend its rally from a three-month low as the chance of a Fed rate increase before the year is out fell back below 50 percent, according to futures prices tracked by Bloomberg. Doubts that Japan has the will or the firepower to stem the yen’s advance through market intervention are supercharging its rally, with the currency surging 20 percent versus the dollar in 2016.

“Broad-based dollar weakness has weighed on the dollar against the yen following the Fed minutes, which have been viewed dovishly,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s reinforced market expectations that the Fed is in no hurry to raise rates. Momentum remains strongly in favor of a stronger yen.”

The yen was little changed at 100.26 per dollar as of 10:34 a.m. in New York, after climbing to 99.65. When Japan’s currency broke the 100 threshold on Tuesday, it was the first time since the announcement of the U.K. referendum result on European Union membership on June 24.

Dollar Gauge

The Bloomberg Dollar Spot Index of the U.S. currency against 10 major peers fell 0.4 percent after dropping to the lowest level since May on Aug. 16. The euro climbed 0.3 percent to $1.1321.

The dollar gauge pared an earlier gain on Wednesday following the release of the July Fed minutes, which showed policy makers were divided on whether the job market would keep improving and saw little risk of a marked pickup in inflation. That came a day after New York Fed President William Dudley said a rate increase was possible as soon as next month.

Japanese authorities are closely watching for speculative moves in the exchange rate because it’s been volatile, Vice Finance Minister Masatsugu Asakawa said. Strategists at BTM and Morgan Stanley predict the yen will extend this year’s 20 percent gain versus the dollar.

“The BOJ is running short of tools which will have a big market impact,” said Janu Chan, a senior economist at St. George Bank Ltd. in Sydney. “Yen intervention may be one tool left in the bag for authorities.”

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