Dollar falls to weakest since May as yen rally shakes up markets

The dollar tumbled to its weakest level in almost two months, a move amplified by a sharp rally in the Japanese yen that reverberated across global currency markets.

The Bloomberg Dollar Spot Index slumped as much as 0,4 percent on Wednesday to its lowest level since late May. The Japanese yen surged nearly 1,5 percent, amid ongoing speculation authorities could intervene again to prop it up, and after former President Donald Trump flagged the exchange rate’s weakness in an interview.

The move in dollar-yen seems to be “sending shock waves” across other dollar crosses, said Valentin Marinov, head of G-10 FX strategy at Credit Agricole.

Japanese authorities are suspected of having spent ¥3,5 trillion (US$22 billion) last week to support the yen, after deploying record amounts a couple of months earlier.

The currency has depreciated around 11 percent over the past twelve months, to its weakest level since the 1980s.

Trump said the strength of the dollar has been hurting the competitiveness of US exports while also pointing to the weakness of yen and yuan, raising concerns he may move to weaken the greenback if he were to win elections this year.

“We have a big currency problem,” he said in comments reported on Tuesday.

“I would always notice they fought very hard to keep their currency low.”

Others pointed to profit taking ahead of policy decisions from the Bank of Japan and the Federal Reserve later this month.

The dollar has weakened almost 2 percent after reaching a seven-month high at the end of June, as traders piled into bets its recent run was overdone.

“Some hot-money flows seem to be squaring some of their favourite G-10 bets of the past two months ahead of the central bank meetings,” said Roberto Cobo Garcia, head of G10 FX strategy at Banco Bilbao Vizcaya Argentaria SA in Madrid.

Sterling rose 0,5 percent to beyond US$1,30, touching its highest level in a year, bolstered further by data earlier that showed UK inflation remains sticky. The euro rallied to US$1,0945, the strongest since March. — Bloomberg