Dollar edges up after pullback amid caution as finance ministers meet

div classBodysc17zpet90 cdBBJodivpBy Kevin Bucklandp

pTOKYO Reuters – The dollar edged up on Thursday supported by expectations for aggressive Federal Reserve monetary tightening, but was well off the previous days peaks amid nervousness about what a gathering of finance ministers might say about its rapid appreciation.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe greenback added 0.36 to 128.335 yen, after soaring to a twodecade high of 129.430 on Wednesday as the Bank of Japan BOJ stepped in to the bond market for the third time in three months to defend its zeropercent yield target, drawing a stark contrast with the Feds increasingly hawkish posture.p

pThe dollar index – which measures the currency against six peers including the yen – ticked up 0.11 to 100.45, following its retreat in the previous session from a more than twoyear peak of 101.03.p

pAlso allowing the dollar to ease overnight, benchmark Treasury yields pulled back from the highest level since December 2018 at close to 3, as dip buyers emerged. Those yields, though, also inched higher in Tokyo trading on Thursday.[US]p

p“Few central banks will match the Fed this year for policy hikes and balance sheet retrenchment, making for a dramatic policy differential in the USDs favour,” Westpac strategists wrote in a client note.p

pThe dollar index “should remain bid in this environment, with talk of 101102 likely to increase near term,” they said.p

pSan Francisco Fed President Mary Daly said on Wednesday she believed the case for a halfpercentagepoint rate hike next month is “complete” and “solid”, adding to recent comments from other Fed officials backing bigger rate increases.p

pMarkets are currently priced for halfpoint increases in both May and June.p

pBy contrast, the BOJ on Wednesday offered to buy unlimited amounts of 10year Japanese government bonds for four consecutive sessions as yields bumped against the 0.25 maximum leeway around its zeropercent target, showing its commitment to ultraeasing stimulus settings ahead of its policy meeting next week.p

pBOJ Governor Haruhiko Kuroda has stuck to the view that a weak yen is overall good for the economy, but admitted earlier this week that moves had been “quite sharp” and could hurt Japanese companies business plans.p

pFinance Minister Shunichi Suzuki has been more categorical, saying on Tuesday that the damage to the economy from a weakening yen at present is greater than the benefits, in his strongest statement yet.p

pHe is due to meet U.S. Treasury Secretary Janet Yellen this week on the sidelines of the Group of 20 financial leaders gathering in Washington D.C., prompting traders to pare back bearish yen bets on the potential for stronger rhetoric on the currency.p

pJapanese policy makers “have not fully utilised their verbal intervention toolkits yet – the next phase would typically involve describing moves as ‘speculative’ and threatening to take decisive action,” Adam Cole, chief currency strategist at RBC Capital Markets, wrote in a research note.p

p“If we get to that point, the hurdle for the next logical step of physical intervention may be lower than generally perceived.”p

pBut on whether intervention would work, he said it “could restore some shortterm balance to markets and manage the pace of JPY depreciation but longerterm, there is no prospect of the BOJ mopping up all of the JPY selling we anticipate from within Japan as the Fed hiking cycle gets properly underway.”p

pElsewhere, the euro eased 0.11 to 1.08425, while sterling slipped 0.14 to 1.30555.p

pThe Australian dollar retreated 0.20 to 0.7436.p

pThe New Zealand dollar sank 0.40 to 0.67755, hurt by softerthanforecast consumer price data.p

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pp Reporting by Kevin Buckland Editing by Christopher Cushingp

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