Dollar Soars to Year High Against Yen Amid Fed’s Inflation Battle

The US dollar surged to its highest point against the yen in a year, experiencing a remarkable 1.41% gain this week—its most substantial one-week increase since August. The driving force behind this ascent was the hawkish stance of the Federal Reserve, signaling the possibility of further interest rate hikes to combat rising inflation.

Federal Reserve Chair Jerome Powell’s Thursday speech, described as “quite hawkish” by Reuters, propelled the dollar to 151.55 yen on Friday, setting the stage for a robust week. The yen’s vulnerability now raises concerns about potential intervention by the Japanese government, which stepped in twice last year to support the currency. Currency strategist Carol Kong from the Commonwealth Bank of Australia suggests, however, that intervention is unlikely unless the dollar/yen exchange rate breaches 152.

US Dollar Index Remains Below 106

Despite the dollar’s strength against the yen, the dollar index, measuring against six major peers, remained slightly lower at 106 on Friday. Nevertheless, it recorded a 0.7% increase, marking the most significant weekly rally since September 10. This positive momentum follows last week’s dip, attributed to the Federal Reserve maintaining interest rates amid weaker US economic data.

Across the pond, the euro, recovering ground lost the previous day, traded at $1.0684 on Friday after a 0.4% drop. European Central Bank President Christine Lagarde emphasized the potential impact of prolonged record-high interest rates on inflation, striving to align with the bank’s 2% target.

Meanwhile, sterling remained steady around $1.2222 on Friday, reflecting data indicating stagnant growth in the UK economy during the third quarter.

As the dollar dominates headlines with its robust performance, the global financial landscape is on high alert, awaiting potential further interventions and policy shifts in response to inflationary pressures. The currency markets remain dynamic, responding swiftly to nuanced cues from central banks and economic indicators.