The dollar climbed to its highest level in more than a year against the Japanese yen on Monday, nearing the key psychological level of 152, before falling sharply amid a flurry of trading in $3.45 billion of options due this week.
The dollar later traded little changed on expectations that a soft reading of the U.S. Consumer Price Index (CPI) on Tuesday will keep Treasury yields trending lower as the market perceives the Federal Reserve is done raising interest rates.
The dollar shot up to 151.92 yen early in the session, the highest since October 2022, about 20 minutes before about $1.25 billion in options contracts with a 152 strike price were set to expire, analysts said.
The dollar suddenly fell to 151.20 minutes after the 10 a.m. ET (1500 GMT) strike price expiration. Another $2.2 billion is set to expire on Wednesday, analysts said.
The yen’s sharp rebound against the dollar wasn’t due to Bank of Japan intervention, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“The dollar/yen came off after almost reaching last year’s high at 10 a.m.,” he said. “The same thing happened in early October.”
Markets were on alert for possible intervention from Tokyo to prop up the battered yen. Earlier in Japan, Finance Minister Shunichi Suzuki said the government would continue to monitor the currency market and respond appropriately.
The dollar was last up 0.12% at 151.680 yen. The yen has fallen nearly 14% against the dollar so far this year.
Fed Chief Jerome Powell and policymakers want markets to be cautious in the hope that rates will stay high and monetary policy will remain tight without the need to raise the Fed’s benchmark interest rate further, said Joseph Trevisani, senior analyst at FXStreet.com.
“That’s why their rhetoric is much stronger than their actions right now,” Trevisani said. “Rates will go down, bond prices will go up” if credit markets really believe the Fed is done raising rates, he said.
“That’s going to take the dollar down, because I think the Fed is pretty much done raising rates.”
The dollar index, a gauge of the U.S. currency against six other currencies, fell 0.09 percent to 105.64.
The reaction to a subdued CPI number is likely to be shallow because U.S. retail sales on Wednesday will be more important as they should better reveal the strength of the economy, said Paresh Upadhyaya, director of fixed-income and currency strategy at Amundi US in Boston.
“All signs point to continued momentum in consumption,” Upadhyaya said. “If we see an upside surprise … markets will start to price in a December rate hike.”
The market barely reacted to news late Friday that Moody’s (NYSE:MCO) cut the outlook for U.S. credit to negative from stable.
The euro rose as much as 0.15% to $1.0697 as the British pound strengthened after Prime Minister Theresa May reshuffled key posts in the British government.
The British currency was up about 0.44% at $1.2279 and about 0.27% firmer against the euro at about 87.14 pence after news of the changes to the makeup of the British government.
Sunak brought back former leader David Cameron as foreign minister in a reshuffle triggered by his sacking of Home Secretary Suella Braverman after her criticism of the police threatened his authority.
