Despite Possible BOJ Intervention, the Dollar Rises

Amid speculation that the Bank of Japan had intervened, the U.S. dollar nudged up in early European trade on Monday. At the same time, the sterling gained as it appeared probable that Rishi Sunak would become prime minister of Britain.

The Dollar Index compares the dollar to a basket of six other currencies. This index increased 0.1% to 112.123 at 02:55 ET (06:55 GMT). The USD/JPY pair saw a lot of overnight activity on the foreign currency markets. The Bank of Japan may have sold at least $30 billion on Friday to boost the yen, and the pair’s erratic swings early on Monday suggested that the Japanese government had intervened again.

Japan Struggles to Keep the Yen from Falling

In a move that signaled intervention, USD/JPY dropped from a high of 149.68 to 145.28 within minutes. However, it has since rebounded to 149.20, showing that the Japanese government still has a lot of work to stop the demand for the dollar relative to the troubled yen.

According to ING analysts, the Japanese authorities are in a difficult situation. Given the very high market volatility level, they may have an interest in driving a strong sell-off in the Tokyo currency, allowing the yen to offset higher risks without breaking above the 150.00 line limit.

According to ING, FX interventions continue to be the most practical solution unless the Bank of Japan adopts a less dovish posture. There have been no indications of this happening so far. After former prime minister Boris Johnson withdrew from consideration to succeed departing Liz Truss, the GBP/USD exchange rate increased by 0.4% to 1.1347. The Conservative Party will name its new leader and prime minister later today.

As a result of Johnson’s choice, Rishi Sunak, the former finance minister and the candidate seen to be the most fiscally responsible, is likely to be elected. His nomination would if only temporarily, lessen the political ambiguity that currently hangs over the pound.