Forex
Yen slides, dollar gains as BOJ seen maintaining YCC
© Reuters. FILE PHOTO: Japanese Yen and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
By Karen Brettell and Iain Withers
NEW YORK (Reuters) – The yen slid against the dollar on Friday after Reuters reported that the Bank of Japan (BoJ) is leaning towards keeping its key yield control policy unchanged next week, ahead of a busy week of central bank meetings that includes the U.S. and Europe.
BoJ policymakers prefer to scrutinize more data to ensure wages and inflation keep rising before changing the policy, five sources familiar with the matter said. The report added there was no consensus within the central bank and the decision could still be a close call.
With inflation having exceeded the BoJ’s target for more than a year, markets have been simmering with speculation the central bank could tweak yield curve control as early as the July 27-28 meeting.
“All expectations are for them to keep yield curve control as is and no changes to rates, but maybe a little upgrade on their inflation outlook,” said Edward Moya, senior market analyst at OANDA in New York.
However, “the chances that we could get a surprise should remain on the table,” Moya added. “The BOJ is potentially going to be a major market moving event because time’s running out on the BOJ to really set up a policy shift.”
Data earlier on Friday showed Japan’s core inflation rose to 3.3%, matching a median market forecast but remaining ahead of the BoJ’s 2% target.
The dollar was last up 1.26% at 141.83 yen, after earlier reaching 141.95, the highest since July 10. It is trading just below the 145.07 level reached on June 30, which was the highest since Nov. 10.
The greenback is on track for its best weekly percentage gain against the Japanese currency since October at 2.22%.
Kenneth Broux, head of corporate research for FX and rates at Societe Generale (OTC:), said the sharp move in the yen on Friday might prompt Japan’s finance ministry to make further public comments to try to support the currency.
“It puts more pressure again on the Ministry of Finance,” Broux said.
Japanese authorities will consider all options to deal with excess volatility in the currency market, the country’s top currency diplomat, Masato Kanda, was reported as saying on Friday.
FED FOCUS
Central bank meetings from the United States and Europe are also due next week, with the Federal Reserve and European Central Bank both expected to raise rates by 25 basis points.
Investors will focus on comments from Fed Chair Jerome Powell after the U.S. central bank’s rate decision on Wednesday for any clues on whether it is likely to continue hiking rates.
Moya notes that the Powell is most likely to “keep optionality on the table – there is no reason for them to commit to September when you have two inflation reports that will happen post next week’s meeting.”
Fed funds futures traders are pricing in 33 basis points of additional tightening this year with rates expected to peak at 5.41% in November.
“We could see the last rate hike in this cycle, but any dovish pivot seems far out,” Christian Scherrmann, U.S. economist at DWS, said.
The – which tracks the greenback against six major peers – was last up 0.41% at 101.16. The index was on track for a 1.20% weekly gain, its biggest rise in two months.
The euro fell 0.17% against the dollar to $1.1111.
The pound fell for a sixth day versus the dollar – its longest stretch of daily losses since last September – and was last down 0.20% at $1.2841.
It briefly bounced earlier in the session on data showing UK consumer spending was stronger than expected in June.
The pound is on track for around a 1.86% weekly fall, its largest since early February.
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Currency bid prices at 10:10AM (1410 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 101.1600 100.7700 +0.41% -2.251% +101.1800 +100.7100
Euro/Dollar $1.1111 $1.1130 -0.17% +3.70% +$1.1145 +$1.1111
Dollar/Yen 141.8300 140.0700 +1.26% +8.18% +141.9450 +139.7500
Euro/Yen 157.58 155.88 +1.09% +12.32% +158.0400 +155.6000
Dollar/Swiss 0.8662 0.8668 -0.06% -6.32% +0.8672 +0.8644
Sterling/Dollar $1.2841 $1.2868 -0.20% +6.19% +$1.2903 +$1.2817
Dollar/Canadian 1.3219 1.3172 +0.38% -2.42% +1.3222 +1.3154
Aussie/Dollar $0.6723 $0.6779 -0.83% -1.37% +$0.6788 +$0.6723
Euro/Swiss 0.9622 0.9646 -0.25% -2.76% +0.9651 +0.9619
Euro/Sterling 0.8651 0.8647 +0.05% -2.18% +0.8679 +0.8635
NZ $0.6177 $0.6233 -0.89% -2.71% +$0.6240 +$0.6177
Dollar/Dollar
Dollar/Norway 10.1020 10.0820 +0.15% +2.88% +10.1030 +10.0300
Euro/Norway 11.2230 11.2064 +0.15% +6.95% +11.2285 +11.1499
Dollar/Sweden 10.4088 10.3417 +0.49% +0.01% +10.4092 +10.3287
Euro/Sweden 11.5660 11.5095 +0.49% +3.69% +11.5758 +11.5060
Forex
Asia FX rises as rate cut dents dollar; yen firms as BOJ holds course
Investing.com– Most Asian currencies firmed on Friday, while the dollar nursed losses after the Federal Reserve cut rates by a wide margin and kicked off an easing cycle.
The Japanese yen was among the better performers, strengthening after the Bank of Japan held interest rates and said it expected steady increases in inflation and economic growth.
The Chinese yuan also firmed after the People’s Bank of China kept its benchmark rates unchanged, ducking some expectations that it would cut rates to further support the economy.
Yen firm as BOJ holds rates, flags higher inflation
The Japanese yen firmed on Friday, with the pair falling 0.2% to 142.28 yen.
The BOJ in a unanimous decision, and said it expected inflation and economic growth to steadily increase.
While the central bank did not provide any overtly hawkish cues, its forecast of higher inflation tied into expectations that the BOJ will raise interest rates further. A slew of policymakers had signaled that rates will rise further in the coming months, especially as inflation picks up.
The BOJ decision and forecast came just hours after data showed inflation rose to a 10-month high in August, as increased wages pushed up private consumption.
While the yen was nursing weekly losses, it still remained close to its strongest levels for 2024, hit earlier in the week. Expectations of higher interest rates are likely to underpin the yen in the coming months.
Dollar weak after rate cut cheer offsets less dovish Fed signals
The and both fell slightly in Asian trade, extending overnight declines as markets looked to lower U.S. interest rates.
The Fed and announced the start of an easing cycle, which could see rates fall by as much as 125 bps by the year-end.
But Fed Chair Powell offered a less dovish outlook for medium-to-long term rates, stating that the central bank’s neutral rate will be much higher than seen in the past. His comments limited overall losses in the dollar, and had also seen the greenback appreciate in the immediate aftermath of the Fed decision on Wednesday.
Chinese yuan at 16-mth high as PBOC holds rates
The Chinese yuan firmed on Friday, with the pair falling 0.3% to its lowest level since May 2023.
Strength in the yuan came as the PBOC kept its benchmark steady, ducking some expectations that it would cut rates further to stimulate the economy.
The PBOC’s decision came even as a raft of recent economic indicators showed sustained weakness in China.
But media reports said the PBOC was instructing local banks to buy dollars and limit overall strength in the yuan, given that a stronger yuan also weighs on Chinese exports.
Broader Asian currencies firmed after the Fed’s decision. The Australian dollar’s pair rose 0.2% and was close to an eight-month high.
The South Korean won’s pair was an outlier, rising 0.2%, while the Singapore dollar’s pair fell 0.1%.
The Indian rupee’s pair fell 0.1%, pulling back further from record highs hit earlier this year.
Forex
Stay long on the yen amid rate hikes, improving growth- BCA
Investing.com– BCA Research said bets on a stronger Japanese yen were becoming more entrenched amid attractive valuations in local assets, the prospect of more interest rate hikes and an improving Japanese economy.
The yen saw a stellar recovery over the past two months, as a hawkish Bank of Japan, a weaker dollar and an unwinding carry trade pushed the currency to 2024 peaks. The pair had fallen as low as 139 yen in recent weeks.
BCA Research said in a recent note that the yen was a “high-conviction” buy, and that interest rates and global economic conditions were likely to favor the currency in the coming months.
BCA expects the BOJ to this week. But a “dovish hold” is an opportunity to accumulate more yen, while an unexpected rate hike is set to further boost the currency.
The research firm said the Japanese economy remained resilient, with increases in local wages helping spruce up private consumption.
With the Federal Reserve beginning an easing cycle, and with the BOJ likely to hike interest rates further, BCA sees interest rate differentials still moving in favor of the yen in the long term- more so if the global economy enters a recession.
BCA expects Japanese inflation to rise further in the coming months, tieing into the BOJ’s forecasts and giving the central bank more headroom to raise interest rates. The central bank hiked rates twice so far this year, ending years of easy monetary policy on expectations of an uptick in private consumption and inflation.
While the BOJ is expected to keep rates on hold in the near-term, especially with a looming leadership change in the Japanese government, it is still expected to keep raising rates by end-2024 and going into 2025. BCA said an interest rate hike will “not hurt Japan.”
On Japanese equities, however, BCA was less enthusiastic, rating them as “structurally neutral.” The firm cited yen strength as a headwind, and saw no immediate positive developments in ongoing corporate governance and structural reforms.
Forex
Dollar slips in choppy trading as traders grapple with Fed’s giant rate cut
(Adds missing “cuts” in first bullet, no other changes to text)
By Chibuike Oguh and Stefano Rebaudo
NEW YORK (Reuters) – The U.S. dollar slipped in choppy trading on Wednesday as markets grappled with the supersized 50 basis point interest rate cut, as well as the switch to an easing monetary policy stance delivered by the Federal Reserve.
Investor expectations had largely shifted towards a dovish outcome in the days leading up to the Fed’s move on Wednesday, with money markets pricing in around a 65% chance of a 50 basis point (bp) cut. But economists polled by Reuters were leaning towards a 25 bp cut.
“The interesting thing is the half point cut, which was pretty much unexpected or at least only half and half yesterday, has not really given the dollar extra damage – which is quite surprising,” said Joseph Trevisani, senior analyst at FXStreet in New York.
The , which measures the greenback against a basket of six peers, was down 0.38% to 100.64 after reversing gains made in early trading. It slid to its lowest in more than a year of 100.21 in the previous session.
The euro strengthened 0.4% to $1.1163. Against the yen, the dollar was 0.33% higher at 142.73 as markets anticipate that the Bank of Japan will leave interest rates unchanged on Friday.
The dollar weakened 0.08% to 0.847 against the Swiss franc and dropped 0.34% to 7.070 versus the offshore .
“What it’s really doing I think is giving permission, if you will, for the other central banks around the world, some of whom have started to cut rates already, to go further with their rate cuts,” Trevisani said.
Money markets priced in 72 bps of additional rate cuts in 2024 and 192 bps by September 2025.
The U.S. Treasury yield curve, which measures the gap between yields on two- and and seen as an indicator of economic expectations, steepened and hit its highest since June 2022. It was last at a positive 13.4 basis points, indicating more upcoming rate cuts.
Initial claims for state unemployment benefits dropped unexpectedly to 12,000 last week, according to Labor Department data on Thursday, suggesting labor market growth.
Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026.
“The initial interpretation of the decision was that it was dovish and while it was basically even odds that it was going to happen, overall, on the surface, it’s still a dovish move,” said Eugene Epstein, head of trading & structured products North America at Moneycorp in Boston.
“Everything reversed basically by the end of the day, so you can make the argument as a bit of buy the rumour, sell the fact. A lot of dovishness was already priced in.”
The pound hit its highest since March 2022 versus the dollar after the Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to keep rates on hold. Sterling was up 0.5% against the greenback at $1.3278 after reaching as high as $1.3314.
The Australian and New Zealand dollars drew support from domestic data surprises. Australian employment exceeded forecasts for a third straight month in August.
The was up 0.77% to $0.6815.
The , meanwhile, traded 0.58% higher at $0.6244, after data showed the New Zealand economy contracted by 0.2% in the second quarter.
Currency bid prices at 19
September 07:17 p.m. GMT
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid
Dollar index 100.62 101.02 -0.39% -0.74% 101.47 100.51
Euro/Dollar 1.1162 1.1118 0.4% 1.13% $1.1179 $1.1069
Dollar/Yen 142.61 142.3 0.22% 1.11% 143.875 141.885
Euro/Yen 1.1162 158.18 0.64% 2.29% 159.96 157.79
Dollar/Swiss 0.8469 0.8463 0.06% 0.62% 0.8515 0.845
Sterling/Dollar 1.3276 1.3214 0.51% 4.37% $1.3314 $1.3155
Dollar/Canadian 1.3559 1.3606 -0.34% 2.29% 1.3648 1.3534
Aussie/Dollar 0.6812 0.6764 0.73% -0.07% $0.6839 $0.6738
Euro/Swiss 0.945 0.9408 0.47% 1.79% 0.9465 0.9406
Euro/Sterling 0.8406 0.8414 -0.1% -3.02% 0.8423 0.8392
NZ Dollar/Dollar 0.6243 0.6208 0.65% -1.12% $0.6269 0.6183
Dollar/Norway 10.4931 10.5877 -0.89% 3.53% 10.6504 10.4394
Euro/Norway 11.7134 11.7726 -0.5% 4.36% 11.7929 11.6517
Dollar/Sweden 10.1611 10.2057 -0.44% 0.93% 10.2535 10.1143
Euro/Sweden 11.3423 11.3478 -0.05% 1.95% 11.3597 11.2923
(This story has been refiled to add the missing word ‘cuts’ in the first bullet)
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