The dollar isn’t falling much because hawkish Fed talk is keeping the dollar from falling.
Most Asian currencies didn’t change much on Wednesday, as hawkish comments from Federal Reserve officials helped stop the dollar’s recent losses. The Japanese yen, on the other hand, stayed close to its lowest level in 32 years as traders ignored threats from the government to step in.
As the difference between Japanese and U.S. interest rates grew, the yen fell as low as 149.29 per dollar. This was the weakest level for the yen against the dollar since 1990.
Short sellers of the currency mostly ignored warnings from the Japanese government that they would step in again to support the currency in the currency markets. When Japan tried to stop the yen from falling in September, it only worked for a short time. At that time, the yen was worth about 145 dollars.
The other Asian currencies did not change much. The Chinese yuan fell by 0.2%, and the Indian rupee stayed at 82.3 to the dollar, which is close to a record low.
The South Korean won went against the trend and went up by 0.4% because traders thought the government would step in to save the currency from 14-year lows.
The dollar index was mostly flat on Wednesday, but it seemed to have stopped falling after two Federal Reserve officials said things that were negative for the dollar. Neel Kashkari, president of the Minneapolis Fed, said that if inflation stays high for a long time, the central bank could raise its benchmark rate to more than 4.75% by the middle of 2023. His comments came just a few days after data showed that U.S. inflation in September showed no signs of slowing down and stayed near highs not seen in nearly 40 years.
Atlanta Fed President Raphael Bostic also said that the main goal of the central bank should be to stop inflation from getting out of hand.
The dollar index stopped going down for two days after they said what they did. On Wednesday, the index and dollar index futures both moved in a flat line around 112. The yields on U.S. Treasury bonds also went up a little bit, staying close to 14-year highs.
As the gap between risky and safe debt shrank, rising U.S. interest rates were the biggest drag on Asian currencies this year. The trend is likely to keep going for the next few months since the Federal Reserve hasn’t shown any signs that it plans to slow down on raising rates.
The markets think there is a nearly 100% chance that the central bank will raise rates by 75 basis points in November. This would be the fourth time this year that rates have been raised.
