Yen pushed to 32-year low against US dollar amid accelerating inflation

LONDON/SINGAPORE - The Japanese yen was pushed to a 32-year low against the US dollar, which edged higher on Friday after dropping the previous day despite US inflation accelerating.

The US dollar rose to as high as 147.785 yen on Friday, a level not seen since 1990, and was last up 0.34 per cent to 147.705.

The dollar index was last up 0.35 per cent, having fallen 0.6 per cent on Thursday as investors seemingly brushed off data that showed US consumer prices increased more than expected in September.

The greenback has been on a tear this year as the Federal Reserve has ramped up interest rates in an effort to tame inflation, pulling money back towards the United States. Fears about the global economy have also boosted the safe haven asset.

Yet, the stronger-than-expected inflation data on Thursday counter-intuitively triggered a rally in global stock markets and a fall in the dollar. Analysts suggested short-sellers reversing their positions seemed to have driven the bounce in equities, weighing on the dollar.

"Some of the details perhaps weren't as worrying as the particular core (inflation) print suggested, so when the market started to sell off, people began to cover very quickly," said Mr James Malcolm, head of foreign exchange strategy at UBS.

But Japan's battered yen remained under pressure despite the brighter global mood.

In September, Japan intervened to buy yen for the first time since 1998. Investors remained on watch for further intervention after Finance Minister Shunichi Suzuki on Thursday reiterated the government's readiness to take action against excessive currency volatility.

Mr Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, said he thought the yen could still hit 150 per dollar in the near future.

"I don't think the Ministry of Finance is targeting any specific level or line in the sand," he said. "What they are saying is they are trying to prevent excessive volatility."

The British pound slipped on Friday, after rallying 2.1 per cent on Thursday on reports that the government could cancel many of its plans for unfunded tax cuts in a major U-turn. The currency was last down 0.77 per cent to US$1.1244.

British Prime Minister Liz Truss sacked Finance Minister Kwasi Kwarteng on Friday, after his “mini” budget in September triggered chaos in markets and forced the Bank of England into an emergency intervention to support the bond market.

Mr Malcolm said the biggest impact from any U-turn would likely be felt in government bond markets, and backed the pound to recover in 2023 after slumping to a record low in September.

"For the fixed exchange market, it's a little bit of a distraction," he said. "I would be very constructive on a 12-month basis on the pound, and only a little bit negative or cautious through the end of the year."

The focus now shifts to November's Fed meeting, where it is expected to deliver a fourth consecutive 75-basis-point rate increase.

The Australian dollar was up 0.1 per cent versus the greenback at US$0.6301, coming off a 2½-year low it touched in the previous session.

The Singapore dollar strengthened against the US dollar after the country's central bank announced a further round of monetary tightening. It was up about 0.4 per cent against the dollar at 7.45pm on Friday. REUTERS