The U.S. dollar took a breather on Tuesday, September 6, after yet one more episode of its 2022 meteoric rally but hit a new 24-year high against the rate-sensitive Japanese yen as U.S. monetary tightening gains momentum amid more positive macro data and widens the gap between the U.S.’s and Japan's persistently low interest rates.

The yen hit a new low at 144.56, its lowest level since 1998, and last traded at 144.51 per dollar. After Fx traders saw a break of the 140 level, the momentum has definitely shifted towards further weakness in the yen. So as long as yield curve control is in place and as long as interest rate divergence exists, one of those side effects will be an indefinitely weaker yen, which is, notwithstanding, is welcomed by Japan’s financial authorities.

The BoJ has defied the tightening trend among global central banks, maintaining its controversial program that keeps long-term borrowing costs pegged at ultra low levels even as yields surge in other markets. This widening perceptional gap has severely undermined the appeal of holding the yen relative to other currencies.

Yen selling intensified earlier on Tuesday, September 6, after a key survey showed that activity in the U.S. services sector unexpectedly picked up in August. The data prompted a further jump in U.S. and European bond yields as traders bet the Federal Reserve would continue this month with its program of big rate rises to tame inflation.

In other currencies, the dollar eased slightly from all-time highs against the euro and pound sterling (0.9900 after hitting a two-decade low of $0.9876 on Monday as the prospect of a winter without Russian gas daunted and 1.1463, respectively, as of 1 p.m. CET September 7), although fears of a recession and a gas crisis limited both European currencies.

Apart from monetary policies' divergence, the unified European currency has been experiencing a lot of geopolitical pressure. As we know, Russia has suspended Nord Stream 1 gas pipeline supplies to Germany “indefinitely”, initially blaming an oil leak at a compressor station but on Monday attributing the shutdown to sanctions imposed by the West. Vitaly Markelov, Deputy General Director of Gazprom, told Reuters on Tuesday that the pipeline will not resume deliveries until Siemens Energy repairs the faulty equipment.

The pound sterling last climbed 0.54% to $1.1585 after falling to a 2.5-year low of $1.1444 on Monday. Liz Truss became Britain's new prime minister after winning a vote on Monday, and her tax cut promises add uncertainty to the public finance outlook.