US recap: Dollar claws back chunk of intervention losses

Sept 22 (Reuters) – The dollar index fell 0.26% on Thursday, led lower by USD/JPY weakness after the BoJ intervened to stop the yen weakening near 146 in European trading, though it took back the worst of its losses.

USD/JPY fell near 5-1/2 big-figures in 1-1/2 hours amid broad dollar selling that lifted other major currencies.

During its subsequent recovery, the dollar index rose from Thursday’s low of 110.46 to 111.21 in late US trade.

Japan’s intervention followed the BoJ’s decision to maintain its accommodative stance.

Without a change in monetary policy by the BoJ, or a pivot lower by the Fed in the near-term, intervention is not likely to have a lasting effect on USD/JPY as US-Japan rates continue to diverge into 2023.

Though severely bruised, the 50% Fib of the 137.61-145.90 rise at 141.76 remains supportive. A close below there would put Thursday’s low of 140.31 and 55-DMA support at 139.86 in focus.

Sterling suffered tumult of its own, though it was ending NorAm -0.03% at 1.1266.

The pound had rallied to 1.1365 ahead of the BoE rate announcement. Traders’ hopes for a 75bp hike, which would keep pace with Wednesday’s Fed hike, were dashed when the BoE hiked by 50bp, pushing the pound to lows by 1.1242.

The BoE vote was 5-4 with 3 dissenters voting for +75bp, while new MPC member Swati Dhingra voted for +25bp.

Sterling traders’ attention now turns to Friday’s fiscal statement from finance minister Kwasi Kwarteng for hints at the degree of stimulus Prime Minister Liz Truss is willing to provide to arrest the effects of high inflation and recession.

EUR/USD is ending NorAm near flat at 0.9840, trading in a relatively slight 1 big-figure range.

EUR/JPY’s recovery above 140 bodes well for further EUR gains. On the margins, the BoJ’s intervention, as yet to be backed up by higher rates, may signal developed market central banks may be willing to act to stall the dollar’s rise.

Rising global rates may stir EUR/USD buying off current lows. European Central Bank board member Isabel Schnabel said that inflation may be more persistent than thought, which may hint at a more hawkish stance to come. EURIBOR rates were also moving higher, the peak in ECB rates now at 3.13% in September 2023.

US Treasury yields moved higher with the 2-year note ending NorAm at 4.12%, the 10-yr at 3.69%. The key 2-10 spread was at -42bp up from -57.8bp overnight.

Cryptocurrencies shrugged off higher rates, with bitcoin up 3% at USD 19k, while ETH up 3% at USD 1,283.

Equities continued their move lower, with the S&P 500 down 0.82% at 3,761, eyeing support at the June 15 low at 3,721 and the June 17 low at 3,637.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)