Dollar dips as Japan and China fortify their currencies

The dollar slipped on Monday, with the threat of currency intervention from Japanese authorities and a government-driven rally in China's yuan weighing on the U.S. currency.

The Japanese yen was around 0.1 per cent higher and last stood at 151.29 per dollar , having bottomed at a four-month trough of 151.86 last week that left it within striking distance of a 32-year low near 152 per dollar hit in 2022.

A rise in the yen helped push the dollar index down 0.16% to 104.26, after a weekly gain of nearly one per cent last week.

Japan's top currency diplomat said on Monday the yen's weakness did not reflect fundamentals, adding to the rhetoric of government officials who have stepped up warnings in recent days over the currency's decline.

The yen has dropped despite the Bank of Japan hiking interest rates out of negative territory last week. Traders think rates in Japan will remain low for some time and therefore the big interest rate gap with the U.S. will stay in place, boosting the appeal of the dollar.

"Japanese officials' verbal intervention is making 152 a very strong near-term resistance for dollar/yen," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. "I think that's keeping dollar/yen from moving substantially higher."

China's yuan found some strength on Monday, climbing roughly 0.2 per cent in onshore markets to 7.21 to the dollar, while its offshore counterpart rose around 0.4 per cent.

Sources told Reuters that China's major state-owned banks were seen to be selling dollars for yuan in onshore markets on Monday, helping reverse a sudden fall at the end of last week.

The Chinese currency has been pressured by growing market expectations of further monetary easing to prop up the world's second-largest economy.

"The support to the renminbi (yuan) has helped to limit Friday's advance of the dollar, as has some quite aggressive verbal intervention in support of the yen from Japanese officials," said Chris Turner, global head of markets at ING.

European currencies regained some ground on Monday, after dropping last week as investors bought the dollar on the basis that the Federal Reserve seems in no rush to ease rates compared to some of its peers.

The euro was last up 0.19 per cent at $1.0828, climbing off a near three-week low. Sterling rose 0.31 per cent to $1.264, having slid more than one per cent last week.

Bets for a June rate cut by the European Central Bank and the Bank of England (BoE) have risen substantially after the Swiss National Bank became the first major central bank to lower borrowing costs last week and BoE Governor Andrew Bailey told the Financial Times that rate cuts ‘‘were in play’’ this year.

Bitcoin climbed 5.4 per cent to $66,900. It has fallen around nine per cent since hitting a record high above $73,800 on March 14.