Investors will often look towards three different currencies which can qualify as a reserve currency. These can include the yen, the dollar, and the euro. And out of all these three major currencies, the dollar has been doing especially well as of late,
It has managed to reach an all-time, 24-year high against the Japanese Yen, which in turn forced Japanese officials to intervene last month. The Japanese Finance Chief has also shared his opinion on if Japan will need to implement a unique strategy to support its currency in the long run. Even the finance chief understands capital injections are not a viable solution.
And along with the yen failing to keep up with the dollar, the sterling managed to rally considerably after stumbling and falling, investors are not too sure what the British government will do next. Before they can commit to investing in it, they need to be sure that the currency is not going to plummet again.
The Pound Makes Gains against the Dollar and Euro
The pound made impressive gains after it reached a new two-week low against the euro and the dollar. The gains it made were on Tuesday when the Bank of England made a private announcement to its many investors that they were going to prolong bond purchases.
Furthermore, many analysts are predicting that the UK will walk back on many of the elements that were a part of their “minibudget.” Their minibudget had roiled markets with all of the changes that it introduced, leading to the pound reeling.
US Producer Price Index Rose by More than Expected
Another reason why the dollar managed to grow even further than the yen was that the US producer price index increased by an amount that most analysts were not expecting. While being optimistic, they saw that the index would rise by 0.2% at most.
However, to everyone’s surprise, managed to increase by 0.4%, almost double that of the predicted amount. With such a massive increase, the dollar was able to further grow.
Staging a Yen-Buying Intervention
Following the gains that the US has been making in its Forex market, Japanese authorities had to stage a yen-buying intervention. This was the first intervention to happen since 1998, which showed how serious the matter had gotten.
According to many analysts, the Bank of Japan was not planning to defend a specific level. Instead, it was looking to address the sudden increase in volatility altogether. The three-month volatility of the yen was much lower today than it was when the country intervened.
Many analysts believe that not intervening at an older level was a much smarter move since it is not actively looking to get on the market’s bad side.