The yen extended its rally to a seven-month high on Wednesday, gaining 4% in September, while the dollar and euro held steady ahead of a pivotal week of Fed, ECB, and BoJ rate decisions. A Treasury Department buyback announcement also rattled bond markets, pushing yields higher.
The dollar made small moves on Wednesday as traders focused on the yen's surge, with the U.S. dollar index up 0.1% to 98.83 at 15:42 ET (19:42 GMT). Markets are also gearing up for interest rate decisions from the Federal Reserve, the Bank of Japan, and the European Central Bank this week.
Yen holds near seven-month high
Yen strength has been the standout story this month. It has been the best-performing major currency, surging 4% since the start of September. USD/JPY touched as high as 152.89 per dollar on Tuesday. The pair last traded 0.2% lower at 153.63 on Wednesday. Traders point to Bank of Japan tightening expectations and intervention speculation: markets are pricing in a near-certainty of a 25 basis point hike on September 18, and they believe Governor Kazuo Ueda could signal further normalization before year-end.
According to LPL Financial's Adam Turnquist: "Watch the 152 level closely", since a break below that support could accelerate the rally and reignite carry-trade unwind risk. Japan's foreign securities holdings dropped a record $87.8 billion in August. That decline financed a 15 trillion yen ($97.67 billion) intervention conducted partly with Washington.
Treasury yields jump on surprise buyback move
At home, Treasury yields surged after the department said it would buy back up to $6 billion in 10- to 20-year maturities, up from $2 billion previously. That is above the at least $4 billion increase it had flagged last month. The 10-year yield rose 3.5 basis points to 4.839%. The more rate-sensitive 2-year yield climbed 2.7 basis points to 4.425%. Higher rates tend to support the dollar.
The sell-off followed inflation concerns tied to soaring oil prices, worries over debt issued to fund artificial intelligence infrastructure, and concerns about the ballooning national debt. Markets now await Thursday's producer price index report and Friday's consumer price index data for cues on rates.
Euro ticks higher before ECB decision
Elsewhere, the euro rose 0.1% to $1.1629 a day ahead of the European Central Bank meeting. The ECB is almost unanimously expected to raise rates by 25 basis points on Thursday.
Source: Investing.com
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