Dollar Softens as Yen Shock Reignites Intervention Fears
The British pound and euro gained against the dollar on Thursday as the US currency weakened following a sharp overnight slide in the yen, which sparked speculation about Japanese intervention. Sterling rose 0.09% to 1.3499, while the euro climbed 0.18% to 1.1609 by 05:05 ET (09:05 GMT).
ING's FX strategist Francesco Pesole attributed the broad dollar weakness to the yen shock and not to any UK-specific fundamentals. He noted that markets may be over-hawkish ahead of next week's European Central Bank meeting, where a hike is widely expected.
Pesole said policymakers may be more concerned about widening European bond spreads than second-round inflation risk at this point, which argues for a less hawkish message from the ECB. The EUR swap curve is now pricing three hikes by April 2027, but Pesole thinks this is 'overly hawkish' considering core inflation has remained well-behaved.
ING still sees EUR/USD risks skewed to the downside, expecting a return to the 1.150-1.155 range in the near term. Chris Turner, ING's global head of markets, said Thursday's sharp drop in USD/JPY sparked fresh talk of Bank of Japan intervention.