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Japanese Yen Weakens to 4-Week Low, Euro Slips Post German Inflation Data

On Wednesday, the Japanese yen touched its lowest level in four weeks against the US dollar amid escalating US yields, fostering a resurgence in carry trades amidst tranquil markets. Meanwhile, the euro faced downward pressure following the release of German inflation data.

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The dollar ascended to 157.41 yen early in the trading session, nearing levels that prompted Tokyo’s intervention at the conclusion of April and the commencement of May, albeit at a more subdued pace compared to last month. Currently, it stands at 157.10 yen, exhibiting stability throughout the day.

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Simon Harvey, Head of FX Analysis at Monex Europe, remarked on the alleviation of the relief rally across Asian currencies post-Consumer Price Index (CPI) data, attributing it to trimmed US easing expectations and fluctuations in bond auctions that caused yields to climb, thereby placing pressure on the yen and Chinese yuan.

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Despite softer US consumer price inflation data earlier in the month, US Treasury yields have resumed their upward trajectory, with benchmark 10-year yields reaching their highest point in nearly four weeks at 4.57%. Lackluster results from two-year and five-year note auctions, coupled with unexpectedly improved US consumer confidence data in May, have been instrumental in this resurgence.

The dollar exhibited a 0.09% increase against the offshore-traded yuan, standing at 7.270.

Harvey noted the impact of the yuan’s ongoing weakness on G10 currencies, citing the Australian dollar’s lackluster response to positive Australian inflation data, which saw consumer price inflation unexpectedly rise to a five-month high in April.

The euro experienced a slight depreciation following the release of German regional inflation data, indicating subdued month-on-month inflation in major regions, albeit higher on a year-on-year basis. Currently, it trades 0.2% lower at $1.0838. Similarly, the euro weakened against the pound, declining by 0.3% to 84.84 pence, marking its lowest level in nearly two years.

Germany’s forthcoming release of national inflation data, scheduled for later in the day, may offer insights into Friday’s euro zone data release, albeit potentially overshadowed by the concurrent release of US Personal Consumption Expenditures (PCE) inflation, the Federal Reserve’s preferred indicator.

Conversely, the pound remained steady against the dollar at $1.2762, following its attainment of a two-month high in the previous session, thereby leaving the dollar index with a modest 0.1% increase at 104.77.

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