Dollar rises on interest rate outlook, yen weakens for third day By Reuters

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By Karen Brettell and Amanda Cooper

NEW YORK/LONDON (Reuters) -The dollar gained on Wednesday as investors continued to bet on the U.S. economy outperforming peers, and was higher against the Japanese yen for a third day, leaving investors wary of the risk of intervention from Tokyo.

In Europe, the Swedish krona came under pressure after the central bank cut interest rates and said it expected two more cuts this year, while the pound remained stuck in negative territory ahead of a Bank of England meeting on Thursday.

The move in Sweden was a reminder that the dollar is likely to remain strong as long as other central banks cut rates before the US Federal Reserve.

The yen continued to draw the attention of currency traders as Japanese officials issued a stronger warning about the weak currency’s impact on the economy.

“Carry trades are still attractive and the market is still more inclined to buy the dollar/yen dip,” said Vassili Serebriakov, a currency strategist at UBS in New York.

“I don’t think the market is ignoring the risk of intervention, but unless there is a significant change in the US economic outlook, we don’t think there will be a significant change in the design of the currency markets either,” Serebriakov added. .

Analysts have said any intervention from Tokyo would only provide a temporary reprieve for the yen, given the wide gap between interest rates in the US and Japan.

Traders believe Japanese authorities spent around $60 billion last week to support the yen after it hit its weakest point in 34 years against the dollar around 160 yen.

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The dollar last rose 0.61% against the yen at 155.63, up from last week’s low of 151.86.

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Investors are focused on the pace and timing of the Fed’s rate cuts. The latest data showing weaker-than-expected US job creation, along with a dovish stance from the US central bank, have strengthened expectations that interest rates are likely to be lower by the end of the year.

The dollar last rose 0.1% to 105.53 against a basket of currencies, above last week’s one-month low.

In the meantime, central banks in Europe have already started cutting interest rates. The Swiss National Bank cut in March, ahead of Wednesday’s move by Sweden’s Riksbank.

The European Central Bank has signaled its intention to cut spending in June, assuming the data point in the right direction, and the BoE is gradually paving the way for its first cut.

‘What we’re looking at is a whole series of European central banks that are going to come crashing down in the coming months, whether it’s June or August or not. We have almost a 50% chance that the Fed will cut spending in September, but I think it will. probably the one that could be pushed out,” said XTB research director Kathleen Brooks.

“For now, and especially today, the focus is on Europe as the first cuts and we see that upward pressure on the dollar,” she said.

While traders are pricing in an expected Fed rate cut in September, that move will also depend on whether inflation will ease further toward the U.S. central bank’s 2% target.

“It will be difficult to adopt more easing from now on in terms of Fed expectations in the short term, I think, and that is why the tendency to buy the dollar will still be there,” said Serebriakov of UBS.

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The euro fell 0.02% to $1.075.

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Sterling weakened 0.22% to $1.2475.

In cryptocurrencies, Bitcoin fell 0.91% to $62,395, marking a fourth daily loss, the longest period of daily declines so far this year.

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