The yen surged to a three-week high against the dollar on Monday, driven by Federal Reserve Chair Jerome Powell’s dovish comments, which sharply contrasted with the Bank of Japan’s hawkish stance under Kazuo Ueda.
The U.S. dollar hovered near its lowest in 13 months against the euro and edged closer to its March 2022 lows versus sterling. Bank of England Governor Andrew Bailey’s remarks about it being “too early to declare victory” over inflation signaled a more cautious approach to interest rate cuts compared to the Fed.
The dollar fell as much as 0.59% to 143.56 yen early Monday, marking its lowest point since August 5, before last trading down 0.25%. Sterling remained stable at $1.3215 after reaching $1.32295 on Friday, its highest level in 17 months.
Powell’s keynote at the Jackson Hole symposium on Friday featured notably strong language, lacking previous caveats like “gradual/gradualism,” which excited market participants, according to Tapas Strickland, head of market economics at National Australia Bank.
In contrast, BOJ’s Ueda, in a special parliamentary session, maintained a hawkish tone, emphasizing the need for further policy rate increases and downplaying the impact of July’s rate hike on market volatility. This stance diverged from market expectations for a softer approach.
The dollar index, measuring the currency against a basket of six major peers, stood at 100.64, close to its 13-month low of 100.60 reached at the end of last week. The euro was steady at $1.1190, just shy of Friday’s high of $1.1201, despite anticipation of a potential European Central Bank rate cut on September 12.
Market expectations are for the Fed to begin its rate-cutting cycle on September 18, with a 36.5% chance of a significant 50-basis point reduction, up from 25% a week earlier.
Elsewhere, the Australian dollar eased 0.1% to $0.6790 but remained near its peak of $0.67985 from Friday, its highest since July 11. The Chinese yuan gained slightly to 7.1130 per dollar in offshore trading, the strongest level since August 5. Bitcoin also saw a 0.9% increase, reaching $64,271.60.
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