Soaring dollar raises alarm as China, Japan escalate FX pushback
Bloomberg :
The renewed advance in the US dollar is sending Asian currencies to multi-month lows and keeping the euro under pressure, while prompting authorities in Japan and China to step up defense of their beleaguered exchange rates.
Japan on Wednesday issued its strongest warning in weeks against rapid declines in the yen, with its top currency official saying the nation is ready to take action amid speculative market moves.
Shortly after, China’s central bank offered the most forceful guidance on record with its daily reference rate for the yuan, as the managed currency weakened to a level unseen since 2007.
Both currencies have been under pressure from broad dollar strength over the past few months.
The yen has slumped by nearly 8% versus the greenback since mid-July, while the yuan is down more than 6% since May.
Indications of US economic resilience are persuading some traders that the Federal Reserve will keep interest rates higher for longer.
That’s helped lift the Bloomberg Dollar Spot Index by around 5% since a July low, while a gauge of Asian currencies has plumbed its lowest since November.
“The prospect of higher-for-longer US rates is reigniting pressure, and investors will be cautious,” said Vijay Kannan, a macro strategist at Societe Generale SA in Singapore.
Elsewhere, the euro and the pound have dropped to the weakest levels since June, on the view that central banks in the euro zone and the UK may need to cut rates faster than the Fed as their economies suffer the impact of higher borrowing costs.
Signs are emerging the dollar has room to extend gains if bets against the currency- steadily amassed as it weakened earlier this year – are suddenly reversed.
According to CFTC data, long non-commercial futures positions are near their lowest level in more than two years.
In Europe, a broad mix of investors led by real money names have been flocking to the dollar this week, having been largely sidelined since late July, according to traders based in the region familiar with the transactions, who asked not to be identified because they aren’t authorized to speak publicly.
