FOREX-Yen steadies after intervention and dollar stays near six-week low

The Japanese yen steadied after historic intervention, while the dollar traded at six-week lows, as revived hopes of an end to the Iran war reduced safe-haven demand.

The Japanese yen steadied on ‌Wednesday ​after historic intervention, while the dollar traded around six-week lows against other currencies as revived hopes of an end to the war in Iran blunted safe-haven demand. The yen was last up 0.15% at 157.53 per dollar, slightly stronger on the day, having fallen 0.4% on Tuesday. On Monday, it ‌hit as little as 155.2 per dollar, having traded at its weakest in 40 years, around 164 per dollar a week earlier. U.S. Treasury Secretary Scott Bessent on Tuesday said the U.S. would do "whatever it takes" to support Japan's efforts to stabilize the yen, echoing the words of former European Central Bank President Mario Draghi, who in 2012 pledged the same to preserve the euro during the regional debt crisis.

"I don't ‌think the central banks are really defending a fixed level but the market is still going to challenge the central bank's resolve," said Marc Chandler, chief market strategist at Bannockburn Capital Markets. "I ‌think we're waiting for some fundamental justification to do so and we can get that in the next several days when we get the jobs data on Friday."

In terms of macro events, the U.S. monthly employment report on Friday could help shape expectations for near-term Fed policy. CRITERIA FOR LONGER TERM The dollar hit its lowest against the Japanese currency in three months after joint purchases on Friday by Tokyo and Washington — the first yen-buying intervention for U.S. authorities since 1998 — and fell further on Monday.

Since ⁠then, it ​has strengthened against the yen, suggesting investors are sceptical ⁠about how effective intervention can be in the longer run. "The phrase 'sticking plaster' does feel relatively appropriate in many instances. The reality is, I think it is nothing more than a containment exercise, unless you get one of three criteria," CIBC Capital Markets ⁠head of G10 FX strategy Jeremy Stretch said.

He said broadly, the three criteria would be a more aggressive approach to rate hikes from the Bank of Japan, markets pricing in a lower chance of rate increases from the Federal ​Reserve, and a lower oil price. Bessent told public broadcaster NHK that he was sure Bank of Japan Governor Kazuo Ueda will "do what is best" for the country's economy, heightening market ⁠expectations that the BOJ could raise rates at its next policy meeting on September 17 and 18. "We think the risk of further intervention remains elevated, but the bar for another move is probably higher unless we see a fresh bout of disorderly yen ⁠weakness," ​said Joel Kruger, markets strategist at LMAX Group, in a note. "Intervention can help slow the pace of depreciation, but history suggests it rarely changes the longer-term trend unless the underlying fundamentals shift."

OIL RETREAT DENTS DOLLAR The dollar index, which tracks the U.S. currency against six others, was 0.12% lower at 99.67 after hitting a six-week low on Monday. With the oil price back around $80 a barrel and U.S. President Donald ⁠Trump saying his administration had "very good discussions" with Iran, investors had less incentive to buy the dollar as a safe haven. Lower oil prices also prompted traders to attach a lower chance of the ⁠Federal Reserve raising interest rates in September, which also ⁠acted as a drag on the dollar. That probability was just below 60% on Wednesday, from closer to 70% at the start of the week. Kansas City Fed President Jeff Schmid said on Tuesday that some monetary policy tightening was needed to bring "too high" inflation back to the Fed's 2% target.

The ‌euro rose 0.15% to $1.1551, while the ‌pound edged up 0.2% to $1.3477.