Dollar Squeezed by BOJ and CPI; Yen Surges

The US dollar came under renewed pressure during Tuesday's trading (Sept 8). The Dollar Index hovered around 98.79, down approximately 0.13%, with the most significant pressure stemming from the Japanese yen. The USD/JPY pair traded near 153.13—a drop of about 0.80%—after the yen broke through to its strongest level since February. This move extended the Japanese currency's rally, following a period in early September when USD/JPY had remained above the 160 mark.

The yen's strengthening was driven by growing expectations that the Bank of Japan would raise interest rates again in September. Investors also continued to unwind carry trade positions that had previously capitalized on the yen's low funding costs. Reuters noted that the yen strengthened to around 153.5 per dollar during Tuesday's session, surpassing the level reached during Japan's intervention in July and marking its strongest position since February.

Among other major currencies, the euro traded around US$1.1625, edging up approximately 0.02% against the dollar ahead of the European Central Bank's interest rate decision. The British pound hovered near US$1.3538 with little movement, while the Australian dollar traded around US$0.7214, down about 0.06%.

The dollar also weakened against several other currencies. USD/CHF traded near 0.8092, down about 0.04%, indicating a strengthening Swiss franc against the greenback. USD/CAD fell approximately 0.06% to 1.3806, while USD/KRW weakened by about 0.36% to 1,340.20. NZD/USD traded near US$0.5875, edging down about 0.03%.

Pressure on the greenback persisted despite last week's US Non-Farm Payrolls data coming in much stronger than anticipated. While the market continues to factor in the possibility of a Federal Reserve rate hike in September, investors remain reluctant to aggressively increase dollar positions prior to the release of US inflation data. The CPI serves as a key catalyst in determining whether the Federal Reserve has sufficient grounds to tighten policy again.

Meanwhile, rising oil prices are adding to uncertainty. Brent crude is hovering around US$99 per barrel—up nearly 2%—as escalating US-Iran tensions heighten risks to energy supplies from the Gulf region. While high energy costs could fuel inflation and support higher interest rates, expectations of policy tightening by the Bank of Japan (BOJ) and the European Central Bank (ECB) are diminishing the dollar's monetary policy advantage.

Newsmaker Analysis: The dollar retains a bearish bias as long as the Dollar Index fails to reclaim the 99 level and USD/JPY remains below 155. The yen currently poses the greatest pressure on the greenback, driven by a combination of expectations for a BOJ rate hike and the unwinding of carry trades. US CPI data is the next critical factor; hot inflation could trigger a dollar rebound, whereas softer figures could potentially extend its decline against the yen, euro, and other major currencies. (arl)

Source: Newsmaker.id