Dollar rises slightly, yen slides towards level that prompted intervention

LONDON, Oct 11 (Reuters) – The U.S. dollar edged back toward multi-year September highs on Tuesday as concerns over rising interest rates and geopolitical tensions unsettled investors, while the yen hovered near the level which prompted last month’s intervention.

Strong US labor market data and the expectation that Thursday’s inflation numbers will remain stubbornly high have all but wiped out bets on anything but high interest rates through 2023 and send the dollar back towards the 2002 peak reached last month.

Risk appetite was also hurt after Russia rained missiles on Ukrainian towns on Monday in retaliation for the explosion that damaged the only bridge linking Russia to the annexed Crimean peninsula.

“The overall narrative is risky,” said Francesco Pesole, FX strategist at ING, citing the escalating conflict in Ukraine and new US export controls, which included a move to cut China off from certain semiconductors.

“There are the Fed Minutes and the US CPI this week which will be significant enough to bolster Fed hawkish expectations and may continue to support the Dollar,” Pesole added.

As of 0759 GMT, the US dollar index was up 0.2% at 113.27, closing in on the 20-year high of 114.78 it hit late last month.

The yen hit 145.86 to the dollar overnight, just below the 24-year low of 145.90 hit before the Japanese government stepped in to support it three weeks ago. It was the last dish at 145.63 for a dollar.

Japan’s Chief Cabinet Secretary Matsuno on Tuesday reiterated the government’s willingness to intervene, saying it would take “appropriate action on excessive currency movements”.

Fear of intervention has helped the yen firm in recent weeks, but as it rebounded to multi-decade lows, analysts were keeping tabs on whether the Bank of Japan would intervene again.

“It is not so easy to assess at what level the Bank of Japan will intervene,” ING’s Pesole said.

“It’s mostly a matter of order in the depreciation of the yen,” Pesole added, though he doubts the BoJ is comfortable with the yen at 150 to the dollar.

The euro was little changed at $0.9699, following four days of losses that saw the currency drift towards the 20-year low of $0.9528 it hit on September 26.

UK markets remain jittery and not soothed by the Bank of England (BoE) stepping up its bond purchases and Finance Minister Kwasi Kwarteng promising to make budget announcements.

On Tuesday, the BoE again acted to stem the slump in the government bond market by announcing a decision to buy inflation-linked debt through the end of the week.

Adding to the BoE’s headaches, labor market data showed Britain’s unemployment rate fell to its lowest level since 1974 in the three months to August, but the drop was driven by a record rise the number of people leaving the labor market.

The pound wobbled, slipping to its lowest level since September 29 at $1.0999. The pound was last down 0.4% at $1.10185.

Meanwhile, the risk-sensitive Australian dollar hit a 2.5-year low at $0.62475 on Tuesday. Analysts at National Australia Bank said the Aussie was the market’s “little scapegoat” on a selloff and further lows were possible in the near term as sentiment is fragile.

The Chinese yuan eased against dollar strength despite continued strong median fixations by the People’s Bank of China as a resurgence in COVID-19 cases clouded the economic outlook.

Reporting by Samuel Indyk in London, Tom Westbrook in Sydney and Ankur Banerjee in Singapore; Editing by Gerry Doyle, Kirsten Donovan

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