The dollar reaches a new peak against the weakened yen, marking a one-year high

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Supported by reduced expectations for interest rate cuts by the US Federal Reserve in the coming year, the dollar experienced an increase, reaching its highest levels against the Japanese yen in more than a year on Monday.

The Japanese government has been surprisingly silent as the yen, which has already dropped by about 14% this year, continues to weaken. However, the markets are staying vigilant in case there is any intervention to support the Japanese currency.

On Friday, the markets processed the information that Moody’s has changed its projection for the credit rating of the United States to “negative.” Attention has now shifted to the upcoming U.S. consumer price index report on Tuesday.

Members of the Federal Reserve’s decision-making group, including Chair Jerome Powell, recently indicated that the fight against inflation may not be finished. As a result, expectations for interest rate cuts in the market were reduced, causing short-term Treasury yields to rise and bolstering the value of the US dollar.

On Monday, the dollar increased to 151.85 yen, reaching its highest point since October 2022. It currently stands at a 0.2% increase, following last week’s significant jump of 1.4% – the largest weekly surge against the yen in three months.

Kit Juckes, a strategist at Societe Generale (OTC:SCGLY), stated that currently, we are in a situation where the value of the dollar has reached its highest point and the economy of the United States is experiencing a slowdown. However, individuals are hesitant to take any action until there is definite confirmation.

He mentioned that the yen has not started to strengthen yet, considering the recent movement in U.S. Treasuries and the bond yields.

The dollar index, which evaluates the strength of the US dollar against other significant currencies, slightly increased to approximately 105.80 and retained the majority of the gains made last week.

Matt Simpson, senior market analyst at City Index, stated that along with the data, there are additional Federal Reserve speakers scheduled for this week who are expected to support Powell’s position of remaining open to the possibility of further interest rate increases.

He mentioned that even if there is a more moderate Consumer Price Index (CPI) report, the Federal Reserve (Fed) will probably resist any expectations of reducing interest rates. It is not in their best interest to consider lowering rates or even talk about it, especially when inflation is still higher than the target.

On Monday, data from Japan revealed that wholesale inflation had decreased to below 1% for the first time in more than two and a half years. This indicated that the previously high cost pressures leading to price increases were beginning to diminish, which did not provide much assistance to the yen.

The value of the euro remained relatively stable against the dollar, staying close to $1.0693.

In other places, the value of the British pound remained steady at $1.2231 in anticipation of UK average weekly earnings information on Tuesday and a Consumer Price Index (CPI) report on Wednesday. This comes after recent GDP data revealed a lack of growth in the economy.