Forex
Yen advances for 2nd day ahead of BOJ meeting next week; dollar firmer
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The yen rose for a second straight session against the dollar on Tuesday, boosted by comments from a senior Japanese politician about normalizing monetary policy, adding pressure on the Bank of Japan to continue hiking interest rates to boost the currency.
The U.S. dollar overall was higher as traders waited for inflation data later in the week, while the Australian and New Zealand dollars continued to struggle after China’s surprise interest rate cuts. The dollar is viewed as a proxy for China risks.
The U.S. dollar was last down 0.9% against the Japanese yen at 155.625. It earlier fell to a five-week low of 155.375 on Thursday.
Senior ruling party official Toshimitsu Motegi said overnight that the Bank of Japan should more clearly indicate its resolve to normalize monetary policy, including through steady interest rate hikes. The BOJ next sets rates on July 31.
Most economists polled by Reuters expect the BOJ to keep rates on hold at the meeting. It last raised rates in March to a range of 0%-0.1% from -0.1%.
“Obviously, the market is positioning itself for the BOJ decision and the Federal Reserve meeting is also coming up,” said Eugene Epstein, head of structured products, North America at Moneycorp.
“But there was no specific news at the moment. If I could gather anything, I would say it’s a continued squeeze. The hawks — all the people who are looking to short the yen — were circling so to speak.”
The yen has found some support on the back of Tokyo’s recent bouts of intervention to prop up the currency and as traders looked to the BOJ’s decision.
In afternoon trading, the , which tracks the U.S. currency against six peers, rose 0.1% to 104.45, after earlier climbing to a two-week high. It recovered from a four-month low of 103.64 last week.
The dollar reacted little to data showing U.S. existing home sales fell more than expected in June as the median house price set another record high.
Home sales dropped 5.4% last month to a seasonally adjusted annual rate of 3.89 million units, the lowest since December, data showed. Meanwhile, the median existing home price soared 4.1% from a year earlier to an all-time high of $426,900, the second straight month it touched a record peak.
In other currencies, the euro was down 0.4% against the dollar at $1.0851, after falling to a two-week trough earlier in the session. Sterling was 0.2% lower against the dollar at $1.2903.
The Australian and New Zealand dollars struggled to regain their footing on Tuesday after China’s move to cut several key interest rates.
China surprised markets on Monday by cutting major short and long-term interest rates in its first such broad move since last August, signalling intent to boost growth in the world’s second-largest economy.
The Australian dollar fell to a three-week low of US$0.6612, while the New Zealand dollar hit its weakest since early May at US$0.5951.
“We have seen a sell-off in commodities overnight and the worry is whether or not China will be able to dig its way out of its slow growth period,” said Thierry Albert Wizman, global FX and rate strategist at Macquarie in New York.
“Some people are seeing the interest rate cuts as a sign of desperation for policymakers, creating a bit of a haven trade for the U.S. dollar.”
Trading was relatively subdued in a week with little in the way of economic data until the release of U.S. personal consumption expenditure (PCE) inflation figures for June on Friday.
In addition, the market’s reaction to U.S. President Joe Biden’s decision to bow out of the election race was muted, though there was some unwinding of the so-called Trump trade, which saw the dollar and U.S. Treasury yields ease a touch.
In cryptocurrencies, the first U.S. exchange-traded funds (ETFs) tied to the price of ether, the world’s second-largest cryptocurrency after bitcoin, began trading on Tuesday.
Ether was last down 0.3% at $3,479, while bitcoin also fell, down 3.2% at $65,985.
Currency
bid
prices at
23 July
07:21
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 104.44 104.3 0.14% 3.03% 104.53 104.
index 2
Euro/Doll 1.0851 1.0892 -0.37% -1.69% $1.0896 $1.0
ar 844
Dollar/Ye 155.6 157.1 -0.93% 10.34% 157.04 155.
n 6
Euro/Yen 1.0851 171 -1.25% 8.5% 171.09 168.
84
Dollar/Sw 0.8913 0.8896 0.2% 5.91% 0.8924 0.88
iss 89
Sterling/ 1.2901 1.2931 -0.21% 1.39% $1.2934 $1.0
Dollar 844
Dollar/Ca 1.3771 1.3758 0.11% 3.9% 1.3776 1.37
nadian 53
Aussie/Do 0.6613 0.6643 -0.42% -2.98% $0.6646 $0.6
llar 612
Euro/Swis 0.967 0.9685 -0.15% 4.14% 0.9691 0.96
s 69
Euro/Ster 0.841 0.8419 -0.11% -2.98% 0.8426 0.83
ling 98
NZ 0.5952 0.598 -0.45% -5.8% $0.5981 0.59
Dollar/Do 51
llar
Dollar/No 11.0175 10.9366 0.74% 8.71% 11.051 10.9
rway 429
Euro/Norw 11.9565 11.9115 0.36% 6.5% 11.9942 11.9
ay 195
Dollar/Sw 10.7624 10.7168 0.43% 6.91% 10.782 10.7
eden 066
Euro/Swed 11.6796 11.6735 0.05% 4.98% 11.6972 11.6
en 538
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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