Dollar rises amid suspected BOJ intervention; pound choppy as Sunak gets top job

2/2 © Reuters. FILE PHOTO: Banknotes of Japanese yen and U.S. dollar are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo 2/2

By John McCrank

NEW YORK (Reuters) -The dollar edged higher on Monday despite another suspected foreign exchange intervention by Japan, while sterling was choppy after Rishi Sunak was picked to become Britain's third prime minister in the last seven weeks, and China's offshore yuan fell to a record low.

The yen hit a low of 149.70 per dollar overnight before surging to a high of 145.28 within minutes in a move that suggested the Bank of Japan (BOJ), acting for Japan's Ministry of Finance, had stepped in again.

Yen overnight volatility surged to its highest since Sept. 21, the day before the BOJ stepped in to prop up the currency for the first time since 1998.

Japan likely spent a record 5.4 trillion to 5.5 trillion yen ($36.16 billion to $36.83 billion) in its yen-buying intervention last Friday, according to estimates by Tokyo money market brokerage firms.

The Japanese currency was last at 148.89, down 0.77% against the greenback.

The dollar held firm after the suspected BOJ intervention, but weakened, briefly turning negative, after S&P flash PMI data showed U.S. business activity contracting for a fourth straight month in October, the latest evidence of an economy softening in the face of high inflation and rising interest rates.

The data may indicate that the dollar's strong run is nearing its end, said Edward Moya, senior market analyst at OANDA.

"You had significant weakness in these flash PMIs. That to me was the big red flag," he said. "The U.S. economy has steadily been showing signs of strong resilience and now it seems like that is going away."

In September, the Federal Reserve delivered its third straight 75-basis-point rate hike, and a fourth hike of that size is expected at next week's policy-setting meeting, though how aggressive policymakers remain after that is up for debate.

The market is now waiting to see how much the economy is weakening and if the Fed will pause after hiking rates in December and February, Moya said.

At 3:30 p.m. EDT (1930 GMT), the dollar was up 0.089% at 111.93 against a basket of six peer currencies.

Sterling see-sawed after Sunak, the country's former chancellor, was appointed leader of Britain's Conservative Party, clearing the way for him to become the next prime minister.

"However Sunak's premiership unfolds, there are likely to be more difficult times ahead for the UK economy as it grapples its way out of a worsening downturn and even the prospect of a general election," said Giles Coghlan, chief market analyst at HYCM.

"That said, there is one aspect of help for the GBP that is often overlooked. On the other side of the Atlantic, a slowdown in Federal Reserve policy would likely help lift the GBP as much, if even not more, than UK fiscal policy."

Sterling was last down 0.16% at $1.12915, off an overnight high above $1.14.

The euro was last up 0.18% at $0.98805, while China's offshore yuan plummeted to a new record low against the dollar of 7.3322.

Chinese President Xi Jinping secured a precedent-breaking third leadership term, picking a top governing body stacked with loyalists. Xi is likely to stick to his zero-COVID policy and could favor the state over private-sector growth, analysts say.