Title: Dollar hits three-week low to yen as Fed's Powell less hawkish than feared

Jul 28, 2022 04:36AM ET

By: AnalysisWatch

The dollar fell to a three-week low against the yen on Thursday after Federal Reserve Chairman Jerome Powell calmed investor concerns about continued aggressive monetary tightening.

The U.S. currency depreciated to 135.105 yen, its weakest level since July 6, after the Fed raised the key interest rate by an expected 75 basis points to bring it closer to neutral, while noting that while the labor market remained strong, other economic indicators had softened.

The dollar-yen is highly sensitive to changes in U.S. Treasury yields, which fell after Powell said that, based on strong employment, he does not believe the economy is in a recession and that a recession is not necessarily necessary to tame excess inflation.

The dollar was last trading at 135.525 yen, down 0.8 percent.

The yield on the two-year Treasury note, which is particularly sensitive to policy expectations, fell to its lowest level this week, 2.9979%.

However, it remained about 20 basis points above the 10-year Treasury yield, which is seen as a signal of an imminent decline.

Whether the U.S. economy meets the definition of a technical recession by reporting two consecutive quarters of contraction will become clear later on Thursday when GDP data is released, which will be the market's next major focus.

The dollar index, which measures the greenback against six peers including the yen, fell 0.05 percent to 106.31 points after dropping 0.59 percent overnight. A value below 106.1 would be the lowest since July 5.

The euro, which is the most heavily weighted currency in the index, was unchanged at $1.02045 after a 0.82% jump overnight.

After rising 1.06 percent on Wednesday, sterling rose 0.05 percent to $1.21640.

Bitcoin increased by 1.33 percent to US $23,081.18 after rising by more than 8% the previous session.