Title: Dollar Soars Against the Yen; BOJ Intervention Eyed

Sep 07, 2022 02:51AM ET

By: AnalysisWatch

The US dollar rose to a new 24-year high against the Japanese yen in early European trading on Wednesday as traders anticipated further aggressive monetary tightening by the Federal Reserve.

At 03:50 GMT, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 110.450, just below a new 20-year high of 110.680.

The dollar's rise was helped by healthier economic data from the US, with the country's important services sector unexpectedly picking up activity in August, giving the Fed more room to raise interest rates significantly when policymakers next meet later this month.

Traders are now pricing in a more than 70% chance that the central bank will raise rates by 75 basis points in September.

This aggressive move is in stark contrast to the Bank of Japan's accommodative monetary policy stance, and as a result, USD/JPY rose 0.9% to a new 24-year high of 144.01 points. This is just off the 144.38 level seen earlier on Wednesday, the pair's highest level since August 1998.

The yen has fallen about 25% against the dollar this year and is on track for its worst year on record, raising the likelihood of intervention by Japanese officials.

EUR/USD rose 0.1% to 0.9911, near Tuesday's 20-year low, but was helped by a drop in German industrial production of just 0.3% in July, better than the expected 0.5 cline as the region's leading economy struggles with rising energy prices.

The European Central Bank is widely expected to raise interest rates on Thursday as inflation in the Eurozone is fast approaching double digits, while European Union ministers will meet on Friday to discuss the energy crisis that is weighing on industry and squeezing households.