Dollar Weakens as Yen Gains on Rising Energy Costs and Interest Rate Hikes

The US dollar has edged lower over the past month from 99.96 to 99.1, despite confidence in US economic growth remaining resolute.

This follows stability through late-July and early-August, but market participants are now acutely aware of risks facing the world due to energy costs, with Brent oil having risen from around USD88 to USD108 over the past month.

The most significant move in the bilateral exchange rates that determine the DXY US dollar index has been in the yen cross, where reports of Japanese authorities requesting major domestic institutional investors adjust their portfolios and currency management to favour the yen have proven effective.

In September, USD/JPY broke through JPY155 and tested JPY154, with the current move contingent on the Bank of Japan delivering on policy and resetting capital flows related to the yen.