Dollar near 6-month high as jitters over China weigh on risk appetite

September 06, 2023 (MLN): The dollar held near a six-month peak on Wednesday as jitters over China and global growth weighed on risk appetite, while the yen was close to a 10-month low, drawing the strongest warning since mid-August from Japan's top currency diplomat, as Reuters reported.

The yen strengthened 0.19% to 147.42 per dollar in Asian hours but was near 147.82, the lowest since November 04 it touched earlier in the session.

The Asian currency has hovered around the key 145 per dollar level for the past few weeks, leading traders to keep a wary eye on signs of intervention by Tokyo.

"We won't rule out any options if speculative moves persist," Japan's top currency diplomat Masato Kanda told reporters on Wednesday.

Kanda, Japan's vice-minister of finance for international affairs, has been the central figure in the country's efforts to stem the sharp decline of the yen since last year.

"The comments are a warning that intervention is on the radar," said Chris Weston, head of research at Pepperstone. However, he said the comments are unlikely to stall the yen's descent.

Japan intervened in currency markets last year in September when the dollar rose past 145 yen, prompting the Ministry of Finance to buy the yen and push the pair back to around 140 yen.

"We are probably going to see more of such verbal intervention if yen moves are deemed to be one-sided and excessive," said Christopher Wong, a currency strategist at OCBC in Singapore.

Against a basket of currencies, the dollar was at 104.69, not far off the six-month high of 104.90 touched overnight. Economic data from China and Europe on Tuesday fanned some fears of slowing global growth, pushing investors to scramble for the dollar.

"Dollar strength remains the dominant play," OCBC's Wong said. Interest rates staying higher for longer and relative U.S. growth resilience are factors that continue to underpin support for the dollar, according to Wong.

China's yuan fell to a 10-month low against the dollar before paring some losses on Wednesday, as state banks stepped in to offer support to prevent the local currency from sinking further.

Data from the eurozone and Britain on Tuesday showed a decline in business activity last month, while a private-sector survey showed China's services activity expanded at the slowest pace in eight months in August.

The euro was up 0.13% at $1.0736 in Asian hours, having breached a three-month low of $1.0705 overnight. Sterling was last at $1.25725, up 0.07% on the day. It also touched a three-month low of $1.25285.

Federal Reserve Governor Christopher Waller said on Tuesday the latest round of economic data gives the U.S. central bank space to see if it needs to raise interest rates again and that he saw nothing that would force a move toward boosting the cost of short-term borrowing again.

Markets are pricing in a 93% chance of the Fed holding rates steady later this month and a 55% chance of no more hikes this year, according to CME FedWatch tool.

The Australian dollar was little changed at $0.63795, after diving 1.3% on Tuesday following weak data from China.

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