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US Dollar Slips Against Yen as Fed’s Waller Reaffirms No Rate Hikes

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On Tuesday, the U.S. dollar experienced a slight decline against the yen amid a volatile trading session. Federal Reserve Governor Christopher Waller’s comments, reiterating the unlikelihood of rate hikes due to inflation nearing the central bank’s 2% target, influenced the market sentiment.

Ahead of the U.S. Memorial Day holiday next week, along with month-end activities that typically stimulate market activity, the greenback remained relatively stable against other currencies.

With no significant economic data released this week, investors closely monitored remarks from Fed officials for insights into monetary policy direction. Waller emphasized that recent economic indicators suggest that tight monetary policy is tempering overall demand, and April’s inflation data indicates progress towards the 2% target.

Federal Reserve Chair Jerome Powell echoed similar sentiments during his press briefing earlier this month, further solidifying the market’s expectation of no rate hikes in the near term.

Vishal Khanduha, co-head of Broad Markets Fixed Income at Morgan Stanley Investment Management, noted that Powell’s and other Fed members’ clear communication regarding rate hikes has eliminated the possibility of such actions, which could have influenced market dynamics significantly.

In late morning trading, the dollar slipped by 0.1% against the yen, reaching 156.065 yen. This currency pair’s movement often reflects expectations of interest rate changes, with the prospect of rate cuts dampening the dollar’s performance by reducing yields on U.S. debt assets like Treasuries.

Despite the potential for further dollar weakness due to expectations of rate cuts, concerns about intervention from Japanese authorities have restrained traders from pushing the yen to new lows. In late April, the yen weakened to over 160 per dollar, its lowest level in 34 years.

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