The dollar wobbled on Wednesday against a range of currencies.
Christian Dauphin | Photodisc | Getty Images
The dollar struggled across the board on Wednesday, particularly against the yen and Australian dollar, with the Japanese currency continuing to outperform after Prime Minister Sanae Takaichi’s landslide election victory.
The dollar was down 0.50% against the yen at 153.60, taking its losses to 2.5% since Friday’s close before Takaichi’s weekend win.
The euro was also down 0.44% against the yen to 182.80 and is down 1.8% since the election.
Many analysts had been expecting the yen to weaken if Takaichi, who is in favour of tax cuts despite Japan’s large debt burden, won big, but the moves have confounded those bets, and have now become somewhat self-reinforcing.
“The yen’s failure to weaken further even after Prime Minister Takaichi strengthened her grip on power in Japan has likely encouraged speculators to further scale back short yen positions in the near term,” said Lee Hardman, senior currency analyst at MUFG.
The dollar lost ground elsewhere.
The euro was up 0.06% to $1.1902, sterling gained 0.3% to $1.3682, and the U.S. currency was down 0.07% against the Swiss franc at 0.7673.
Overnight, the U.S. posted slower-than-expected retail sales in December, while a separate report showed growth in U.S. labour costs unexpectedly slowed in the fourth quarter.
U.S. jobs data for January, delayed from last week due to the short government shutdown, could be the next test for this weakening dollar trend later on Wednesday.
Nonfarm payrolls likely increased by 70,000 last month after rising 50,000 in December, a Reuters survey of economists showed, and a large beat or miss will shape expectations for Federal Reserve policy.
Markets are now pricing in about 60 basis points worth of easing from the Fed by December, even as some policymakers said rates could remain on hold for some time. 0#USDIRPR
The other notable mover was the Australian dollar AUD= which broke above $0.71 for the first time since February 2023. It last traded 0.48% higher at $0.7108.
Reserve Bank of Australia Deputy Governor Andrew Hauser said inflation was too high and policymakers were committed to doing whatever was necessary to bring it to heel.
“We have upgraded our Aussie dollar view… the end-year forecast is $0.73 from $0.69,” said Moh Siong Sim, a currency strategist at OCBC.
He noted the RBA’s rate hike last week to 3.85% was the first in the G10 outside of Japan and “that hawkish hike will put additional focus on whether the RBA would follow with more hikes down the road.”
Markets imply around a 70% chance rates will rise to 4.10% at the RBA’s May meeting, following the release of first-quarter inflation figures.
The New Zealand dollar was up 0.24% at $0.6057, and markets also see an RBNZ rate hike by year-end.
Norway’s crown also outperformed a day after stronger-than-expected core inflation data caused markets to price out any further monetary easing there.
The dollar was last down 0.4% at 9.469 crowns, its lowest since 2022, with the euro 0.34% lower at 11.26 crowns, its lowest in 10 months.
