NEW YORK/SINGAPORE, Jan 26 (Reuters) – A rising yen dragged the dollar broadly lower in early trade on Monday, with markets on alert about the prospect of intervention in the yen and investors cutting dollar positions ahead of a Federal Reserve meeting and possible Fed chair announcement.
The yen rose almost 1% to a two-month peak of 154.22 per dollar. The euro made a four-month top of $1.1875 and last traded at $1.1858.
Trade was thinned by holidays in Auckland and Australia, putting focus on the Tokyo open around midnight GMT after Japan’s Prime Minister on Sunday said her government would take “necessary steps” against speculative market moves.
The yen had its largest one-day gain on the dollar for nearly six months on Friday, with spikes in late Asia trade and again in the New York session.
A source told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers, seen as a precursor to intervention, and the scramble to get out of short yen positions has the currency some 3% off Friday’s low.
“Rates being checked on Friday and then stronger talk over the weekend have all contributed,” said Nick Twidale, chief market strategist at ATFX Global in Sydney.
The involvement of the Fed also has traders on edge, said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey, figuring intervention could be a joint U.S.-Japan effort and stand a stronger chance of success.
Spillover dollar selling helped sterling, the Australian dollar and the New Zealand dollar to four-month highs.
Sterling was up about 0.3% to a top of $1.3680, while the Aussie rose 0.5% to $0.6938, as did the kiwi to $0.5977.
“The dollar has been fragile anyway, but the gain in the yen has been the precipitating trigger for the market to sell it across the board,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.
“There are lot of things going on right now in the U.S. like the protests against the latest Minnesota shooting. Trump could also be naming the successor to Jay Powell this week. So the markets are nervous about both.”
U.S. President Donald Trump said on Thursday he would soon announce his pick for the next Federal Reserve chair, to replace Chair Jerome Powell.
Over the weekend, Trump said he would impose a 100% tariff on Canada if it follows through on a trade deal with China.
Canadian Prime Minister Mark Carney has said his country respects its commitments under the United States-Mexico-Canada trade agreement not to pursue free trade agreements with non-market economies.
The U.S. Federal Reserve sets interest rates on Wednesday, with markets expecting no changes but for policymakers to flag further cuts with about 50 basis points of easing priced in for the year.
The Bank of Canada and Sweden’s Riksbank are also expected to leave interest rates on hold this week, and Singapore is expected to leave its monetary policy unchanged.
“USD risk premium continuing to rise as investors balk at U.S. policy direction,” said senior market strategist Jason Wong at BNZ in Wellington.
(Reporting by Gertrude Chavez in New York and Tom Westbrook in Singapore; Editing by Jamie Freed)
