The U.S. dollar rose for 2 consecutive weeks, but the outlook remains uncertain. Expectations of a Federal Reserve rate hike and higher crude oil prices provided support, while the yen sharply rebounded and the dollar plunged at one point toward the end of the week.
This week, the U.S. dollar rose for 2 consecutive weeks, although its future direction was said to remain uncertain. Following comments from Federal Reserve officials, expectations for continued rate hikes spread, and the probability of a rate hike at the October meeting has been priced into the market at approximately 66%. Crude oil prices rose again as tensions in the Middle East intensified, pushing up U.S. Treasury yields and supporting the dollar.
In the latter half of the week, the dollar plunged following a sharp fall in crude oil prices and warnings over the risk of Japanese yen intervention. The USD Index fell from its weekly high of 101.34 to 101.00 at the close, but maintained an overall weekly gain.
Meanwhile, the Japanese yen fell for the 2nd consecutive week, ending at ¥157.19 to the U.S. dollar and increasing intervention risks. Even after the Bank of Japan announced its highest rate hike in 31 years on 18 September, doubts reportedly remained over its future tightening stance, which was viewed as a factor supporting yen depreciation.
It was also reported that dialogue between the Ministry of Finance and the U.S. and Japanese authorities had intensified over the possibility of intervention. In a telephone call between Finance Minister Katayama and the U.S. Treasury Secretary, the two reportedly reaffirmed concerns over yen depreciation and expressed their intention to strengthen cooperation. Experts also mentioned the possibility that the effects of intervention may not last, and said the Japanese government’s response would be key to the yen’s future direction.