The Japanese Yen climbed to a seven-month high on Wednesday, keeping pressure on the Dollar as markets reacted to oil prices surging above $100 a barrel amid an escalating conflict in the Middle East.
Iran-backed Houthi forces in Yemen struck several cities in Saudi Arabia, drawing another US ally deeper into the conflict. Meanwhile, US forces targeted several Iranian oil tankers, while Tehran launched an attack on a US base in Jordan.
Brent crude futures jumped as much as 2.3% to above $100 a barrel, marking their first move past that level since late July. The oil surge is weighing on global markets ahead of US inflation data due on Friday, which could influence expectations for central bank decisions in the United States and Japan next week, Reuters reports.
The Dollar edged lower, with some analysts linking the weakness to the Yen’s sharp gains over the past week and investors adjusting positions ahead of a series of upcoming central bank meetings.
The Euro gained 0.18% to $1.1641, hovering near a two-week high as markets awaited a widely anticipated interest rate hike from the European Central Bank on Thursday.
The Dollar index, which measures the US currency against six major peers, hovered close to its lowest level in nearly two weeks.
The Japanese Yen remained in focus after gaining around 4% so far this month, reshaping the dynamics of the popular carry trade, where investors borrow cheaply in Yen and put the funds into higher-yielding currencies and assets.
The Yen strengthened to 153.32 per Dollar, just below Tuesday’s seven-month peak of 152.89. Its advance has been broad-based, with the Japanese currency also gaining against the Euro and Sterling.
The Yen’s gains have been driven by expectations that the Bank of Japan will accelerate its policy tightening, the possibility of Japanese investors bringing overseas assets home and pressure from Washington for a stronger Japanese currency.
Markets are broadly pricing in a 25-basis-point BOJ rate hike at its 17-18 September meeting. However, the Yen’s rally could depend on whether Governor Kazuo Ueda reinforces expectations for further tightening with a hawkish message.
US Treasury Secretary Scott Bessent on Tuesday challenged traders to bet against the Yen, following an unprecedented joint US-Japan intervention in late July aimed at strengthening the currency. The operation was designed to discourage Tokyo from selling US Treasuries to finance the intervention.