Dollar holds firm, yen hovers around 32-year low

SINGAPORE – The dollar took a breather on Friday after a volatile overnight session as red-hot U.S. inflation data pointed to more aggressive interest rate hikes, while traders were on edge about intervention as the yen wallowed near a three-decade low.

The dollar index was little changed after falling 0.5 percent in the previous session as investors digested data that showed U.S. consumer prices increased more than expected in September.

The temporary fall in the dollar was partly driven by the sharp recovery in Wall Street stocks, Commonwealth Bank of Australia strategist Carol Kong said.

Wall Street indexes made a dramatic recovery, closing sharply higher after an earlier sell-off on Thursday as investors rushed back into riskier bets.

However, the investment mood remained broadly cautious, which is likely to continue to support the dollar.

“I doubt the weaker dollar will sustain … the dollar is the safe-haven currency currently,” Kong said.

Focus now shifts to next month’s Federal Reserve policy meeting where the it is expected to deliver another 75-basis-point (bps) rate increase.

The dollar was trading at 147.43 to the yen, not far off from the 32-year peak of 147.665 it hit in the previous session.

Investors remained on the watch for an intervention from the government to prop up the fragile currency. Japanese Finance Minister Shunichi Suzuki reiterated the government’s readiness to take “appropriate action” against excessive currency volatility.

Last month, Japan intervened to buy yen for the first time since 1998, in an attempt to shore up the battered currency.

Rodrigo Catril, a currency strategist at National Bank of Australia, said any intervention from here will be about the speed of depreciation rather than a specific level.

Meanwhile, sterling last traded at $1.1309, down 0.18 percent on the day, reversing earlier steep gains against the dollar following reports of a possible U-turn by the UK government on its fiscal plans.

The Australian dollar was up 0.22 percentversus the greenback at $0.631, coming off two and half year low it touched in the previous session.