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Dollar hits 5-month high while jawboning supports yen

Tuesday,   02-Apr-2024   03:18 PM (IST)

The U.S. dollar hit its highest in almost five months on Tuesday as stronger-than-expected economic data caused investors to cut their bets on a June rate cut, boosting the currency. Fears of intervention by Japanese officials slowed the dollar's gains against the yen, however, even as long-term U.S. Treasury yields - which the currency pair tends to track - jumped to a two-week top overnight. The dollar index rose to 105.1 on Tuesday, its highest level since Nov. 14, adding to sharp gains on Monday after U.S. data unexpectedly showed the first expansion in manufacturing since September 2022. It last stood at 105, unchanged from Monday. The euro fell to its lowest since mid-February and was not far off its November lows, trading down slightly at $1.0732. Data on Tuesday showed that the euro zone factory downturn deepened again in March. Sterling was little changed at the bottom end of its recent range and near its lowest since December at $1.2558. Monday's U.S. ISM manufacturing survey data also showed a sharp rise in a measure of prices in the sector, adding to investors' concerns that inflation will be slow to fall back to 2%, delaying the Federal Reserve's first rate cut. Fed Chair Jerome Powell on Friday said the central bank was in no hurry to lower borrowing costs after data showed a key measure of inflation rose slightly in February. The Japanese yen was last flat at 151.58, after earlier dipping to 151.79. It has traded in a tight range since reaching a 34-year trough of 151.975 on Wednesday, which spurred Japan to step up warnings of intervention. On Tuesday, Finance Minister Shunichi Suzuki reiterated that he would not rule out any options to respond to disorderly currency moves. Japanese authorities intervened in 2022 when the yen slid toward a 32-year low of 152 to the dollar. The yen's decline has come despite the Bank of Japan's first interest rate hike since 2007 last month, with officials cautious about further tightening amid a fragile exit from decades of deflation.