The US Dollar (USD) reached its highest level in over a year against the Japanese yen on Monday, as expectations for U.S. Federal Reserve interest rate cuts next year were scaled back. Japanese Finance Minister Shunichi Suzuki stated that the government would continue to monitor the currency market and respond accordingly, but this had little immediate impact on the yen, which has seen a decrease of almost 14% against the dollar this year. Sterling also saw a slight increase following a government reshuffle by British Prime Minister Rishi Sunak.
Overall, the tone in global currency markets was subdued, with traders waiting for the latest U.S. inflation numbers on Tuesday to determine the likelihood of rate cuts next year. The dollar rose to 151.88 yen on Monday, its highest level since October 2022, and Fed policymakers’ suggestions last week that the battle against inflation may not be over yet led to a scaling back of market rate cut bets. This pushed up short-dated Treasury yields and supported the greenback.
The dollar index, which measures the greenback’s value against other major currencies, was slightly firmer, maintaining most of last week’s gains. The market showed little reaction to news late on Friday that Moody’s cut the outlook for U.S. credit to negative from stable.
In Japan, wholesale inflation slowed below 1% for the first time in just over 2-1/2 years, suggesting that cost pressures driving up prices were starting to fade, providing little support to the yen. However, markets remained alert to potential intervention from Tokyo to strengthen the yen.
The euro was slightly stronger at $1.0684, while sterling was 0.2% stronger at $1.2254. Britain’s currency was also 0.2% firmer against the euro at around 87.24 pence after news of changes to the UK government. Prime Minister Sunak brought back former leader David Cameron as foreign minister in a reshuffle triggered by his firing of Interior Minister Suella Braverman after her criticism of the police threatened his authority.