Por Peter Nurse
Investing.com – The US dollar lost ground at the start of trading in Europe on Wednesday, retreating from a new 20-year high hit against the Japanese yen, though it remains elevated as more and more officials at the Federal Reserve talk of imminent sharp rises in interest rates.
At 9:05 AM ET, the , which tracks this coin against a basket of six other majors, is down 0.2% at 100.795, just below Tuesday’s high of 101. .03, a level not seen since March 2020.
All eyes turn to the Federal Reserve meeting in early May, amid growing expectations that the central bank will raise rates by more than the quarter percentage point it announced at its March meeting.
Minneapolis Fed President Neel Kashkari and Chicago Fed President Neel Kashkari, who are among the more compliant members of the Federal Open Market Committee, indicated Tuesday that they were comfortable with a strong response from the central bank. to combat these unprecedented levels of inflation.
This comes after Federal Reserve Bank of St. Louis President James Bullard said on Monday that the central bank needs to move quickly to raise interest rates to around 3.5%, and should not rule out rate hikes of 75 basis points.
US Treasury bond yields rise, reaching 2.981% for the first time since December 2018, before falling back to currently stand at 2.94%.
In contrast to the Fed, the Bank of Japan has again offered this Wednesday to buy unlimited amounts of Japanese government bonds, trying to prevent the yield of the bonds to exceed its ceiling of 0.25%.
This has caused the record high of 129.40 for the first time since April 2002, only to fall back to 128.70 after Japanese Finance Minister Shunichi Suzuki lashed out at the weakening currency, warning of the dangers economic.
Elsewhere, the pair is up 0.2% to the 1.0810 level, while the is up 0.2% to 1.3019, with both pairs off their multi-month lows vs. dollar, although they continue to feel the impact of the war in Ukraine.
The uncertainty surrounding the French presidential elections, in the framework of which the current French president, Emmanuel Macron, and the far-right candidate, Marine Le Pen, are preparing to debate this Wednesday, also weighs down the single currency.
This debate could be decisive in the close race to decide who will lead the country for the next five years, and any hint of a Le Pen victory could put the euro under great pressure given its anti-EU stance.
“The divergence between the monetary policies of the Fed and the underperforming central banks (ECB, BoJ) continues to make the case for dollar strength,” ING (AS:) analysts say in a note. “USD/JPY could hit 130 soon but FX market intervention is not assured, while EUR/USD could hit 1.0700 level soon as second round of French elections approaches and the situation in Ukraine is still very volatile”
The pair is up 0.6% to the 0.7416 level, while the is up 0.3% to 6.4118, posting its highest level since October 2021 after the People’s Bank of China surprised the markets by keeping its prime lending rates unchanged, breaking the global tightening trend.