Investing.com — Asian currencies were mixed on Wednesday as the U.S. dollar held near recent highs, while the Japanese yen weakened toward 158 per dollar as markets weighed the Bank of Japan’s policy outlook and renewed fiscal concerns.
Higher oil prices and rising Treasury yields kept pressure on the currency complex, while investors awaited the Federal Reserve’s September meeting minutes and several Fed speakers for clues on the next rate move.
The U.S. dollar index was around 102.03, up 0.2%, while the USD/JPY pair rose 0.2% to 158.38. The EUR/USD pair fell 0.2% to 1.124, while the GBP/USD pair slipped 0.2% to 1.325. The Australian dollar was around $0.6973 and the New Zealand dollar at $0.5610.
Oil rose as much as 1% to around $101.50 a barrel after Iran increased attacks on tankers in the Strait of Hormuz, pushing Treasury yields higher. The 10-year U.S. Treasury yield rose three basis points to around 5.31%.
Dollar awaits Fed minutes as hike bets retreat
The dollar has come under some pressure recently after softer U.S. PCE inflation and jobs data reduced expectations for an October rate increase, but markets continue to price further tightening later this year and in 2027.
The chance of a Fed hike of at least 25 basis points in October has fallen to 20.5% from about 51% a week ago, according to CME FedWatch, while markets still price an 84.5% probability of a December increase.
The Fed will release minutes from its September 15-16 meeting later Wednesday, when it raised rates to combat inflation.
Fed officials Christopher Waller, Neel Kashkari and Alberto Musalem are also due to speak. Kansas City Fed President Jeff Schmid said Tuesday that the central bank still needs to raise rates further to lower inflation.
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Yen weakens as BOJ weighs fiscal risks
The USD/JPY pair remained around the mid-158s after a new BOJ board member, Ayano Sato, said she supports raising interest rates in several stages.
The BOJ could signal this month that underlying inflation has broadly reached its 2% target, according to reports citing people familiar with its thinking, highlighting its readiness to raise rates again.
DBS FX & Credit Strategist Chang Wei Liang said the yen could remain slightly weaker as the Japanese government considers a second supplementary budget.
Markets could react negatively because authorities had previously indicated another package was no longer planned and that reserve funds would instead be used for disasters and other emergencies, Chang said.
