Dollar on the defensive amid lower yields, yen hovers near 38-year trough By Reuters

By Kevin Buckland

TOKYO (Reuters) – The dollar remained on the back foot on Wednesday after dovish comments from Federal Reserve Chair Jerome Powell sent U.S. bond yields lower, overshadowing a strong domestic jobs report.

The euro held firm, helped by a stubbornly high local inflation reading on Tuesday. Sterling was steady ahead of Thursday’s U.K. election.

However, the yen continued to languish close to a 38-year low versus the dollar, amid the increased possibility of a second Donald Trump presidency, which could likely lead to higher long-term Treasury yields.

The , which measures the currency against the euro, sterling, yen and three other major peers, was little changed at 105.66 early in the Asian session, after a 0.14% retreat in the previous session.

The euro was flat at $1.0749, trading near the top of its range since mid-June.

Sterling held its ground at $1.2689 after rising 0.28% on Tuesday.

The yen was at 161.54 per dollar, after slipping to the lowest since December 1986 on Tuesday at 161.745.

Traders remain on high alert for another round of official Japanese intervention, after the Bank of Japan and the Ministry of Finance spent some 9.8 trillion yen ($60.67 billion) in the days spanning late April and early May, when the currency plunged to 160.82 per dollar. Some speculated authorities could act on Thursday, when thin liquidity due to a U.S. holiday would exacerbate market moves.

President Joe Biden’s faltering debate performance last month has triggered a move higher in long-term Treasury yields, amid greater risk of Trump retaking the White House, resulting in higher tariffs and bigger spending.

Yields have eased this week though, with Fed boss Powell saying at a European Central Bank conference in Sintra, Portugal, on Tuesday that the U.S. economy has made significant progress on inflation, even as he added that more supportive data is needed to start cutting interest rates.

The edged down to 4.4336% in Tokyo hours, after pushing as high as 4.4930% at the start of the week.

Increasing odds of a Trump presidency have “moved the goalposts higher for “, said Tony Sycamore, a markets analyst at IG.

“A Trump presidency would likely bring higher fiscal deficits, inflation and yields at the mid- to long-end of the U.S. rates curve, countering the impact of Fed rate cuts,” he added. “This possibility will likely see the BOJ save its intervention bullets for now.”

U.S. data overnight showed job openings had increased in May after posting outsized declines in the prior two months. The closely watched monthly payrolls report is due on Friday.

Meanwhile, euro zone inflation eased last month but a crucial services component remained stubbornly high, fuelling concern that domestic price pressures could stay at elevated levels.

Elsewhere, the Australian dollar rose 0.11% to $0.6675, helped by better-than-estimated retail sales data.

hovered close to its weakest since mid-November amid signs that local authorities are willing to tolerate its decline. In offshore trading, the yuan was flat at 7.3077 per dollar, just shy of the low reached Tuesday at 7.3094.

($1 = 161.5300 yen)