The dollar firmed above ¥113.50 in Tokyo trading on Thursday, supported by upbeat Tokyo stocks, but its topside was capped by receding expectations for an additional interest rate hike by the U.S. Federal Reserve.
At 5 p.m., the dollar was at ¥113.93-94, up from ¥113.46-47 at the same time Wednesday. The euro was at $1.1127-1127, down from $1.1168-1168, and at ¥126.78-79, up from ¥126.71-73.
After hovering around ¥114.10 in the early morning, the greenback soon advanced to around ¥114.30, reflecting a “risk on” mood following overnight gains in the U.S. stock market and crude oil prices.
The dollar eased below ¥113.90 in midmorning trading, dragged down by selling from Japanese importers and dovish remarks by James Bullard, president of the Federal Reserve Bank of St. Louis.
Speculation about a Fed interest rate hike in March diminished after Bullard said in a speech on Wednesday that it would be “unwise” for the Fed to continue a monetary policy normalization strategy in the current environment.
“The dollar came under pressure versus the yen as Bullard, who had been known for his hawkish stance, showed strong concern over a fall in U.S. inflation expectations,” a currency broker said.
The dollar temporarily regained ground and rose to levels around ¥114 after the Chinese central bank set its official midpoint rate for the yuan against the U.S. currency at a higher level compared with its previous fixing.
While the dollar was underpinned versus the yen by the rise in the Nikkei average, its topside proved heavy. The greenback was directionless in late hours amid crosscurrents of selling and buying.
“Following volatile exchange rate movements last week, the market was led by position adjustments,” an official at a currency margin trading service provider said. “Market participants are seen waiting for fresh trading incentives for now.”
“For the dollar to chase higher ground vis-a-vis the yen, the U.S. economy needs to show a clear sign of recovery in a way that an additional interest rate hike by the Fed comes in sight,” an official at a major Japanese bank said.