Forex
Asia FX firms with Powell in focus; yen rises as BOJ’s Ueda talks rate hikes
Investing.com– Most Asian currencies firmed on Friday as a rebound in the dollar cooled before an upcoming address by Federal Reserve Chair Jerome Powell, where he is expected to provide more cues on interest rate cuts.
The Japanese yen was the best performer in Asia, extending a rally seen earlier this week after BOJ Governor Kazuo Ueda struck some hawkish notes during a parliamentary hearing. His comments also saw markets look past somewhat middling inflation data for July.
Broader Asian currencies advanced, but were set for a muted weekly performance as optimism over lower U.S. interest rates was offset by renewed concerns over slowing economic growth.
Japanese yen surges as Ueda says rates too low
The Japanese yen firmed on Friday, with the pair falling 0.4%. The pair was set to fall 1.3% this week.
The BOJ’s Ueda said that short-term interest rates were still too low, and needed to be brought up further to hit neutral levels. He also reiterated the bank’s recent messaging that it will raise interest rates further if inflation remains steady.
Ueda’s comments boosted the yen, which has been on a tear since the central bank hiked rates by 15 basis points in late-July. The prospect of higher rates presents more upside for the yen.
But this notion was somewhat offset by mixed consumer price index inflation data for July. While and CPI both rose, a key underlying inflation print, which is closely watched by the BOJ, fell below 2%, sparking doubts over just how much headroom the BOJ has to hike.
Dollar falls with Powell talk on tap
The and both fell about 0.2% in Asian trade, as a rebound from seven-month lows ran dry.
Focus is now squarely on an address by the Fed’s Powell at the Jackson Hole Symposium later on Friday, where he is expected to provide more cues on interest rates and the economy.
Powell’s address also comes as weak labor data from earlier this week sparked renewed concerns that a cooling jobs market will bring a U.S. recession.
Markets were still split over a 25 or 50 basis point cut in September, showed.
Broader Asian currencies drifted higher on Friday and were set for a middling week despite recent losses in the dollar.
The Chinese yuan’s pair fell 0.1%, while the Australian dollar’s pair added 0.2%.
The South Korean won’s pair fell 0.3%, while the Singapore dollar’s pair was flat.
The Indian rupee’s pair steadied after once again testing levels above 84 rupees earlier in the day.
Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.
Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.
The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.
In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.
These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.
Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.
Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.
Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.
The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.
Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.
Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.
The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.
While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.
Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.
According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.
While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.
“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.
The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.
UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.
“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.
However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.
The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.
UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.
In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.
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