Forex

BOJ policy tweak sends yen on volatile ride

Published

1 year ago

July 28, 2023

BOJ policy tweak sends yen on volatile ride

By Amanda Cooper and Alun John

LONDON (Reuters) -The yen whipsawed in its most volatile trading session in months on Friday after the Bank of Japan made its yield curve control policy more flexible, which investors took as a step towards an eventual shift in its massive stimulus programme.

Chopping and changing direction as traders digested the BOJ decision, the yen strengthened by as much as 1.2% to as much as 138.05 per dollar before weakening 1% on the day to 141.20. The Japanese currency was last at 138.97, up 0.4% against the dollar.

The yen has not seen such a large swing between intraday highs and lows against the dollar since late April. It also waxed and waned against other currencies, eventually trading lower on the day against sterling, falling 0.3%, and flat against the euro.

The BOJ ended a two-day policy meeting on Friday with a decision to keep its short-term interest rate target at -0.1% and that for the 10-year government bond yield around 0%.

But at the same time, the central bank said it would offer to buy 10-year Japanese government bonds (JGB) at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.

“They’ve put a floor under the yen, or a cap on dollar/yen, between MOF and the Bank of Japan reasonably effectively. But they’ve not done anything to discourage you from believing that the move from 137-142 – whatever we think the current range is – back towards 130 is going to happen quickly,” Societe Generale (OTC:) currency strategist Kit Juckes said.

He said that even such a drop would still be a function of bond yields falling elsewhere in the world, rather than rising in Japan.

“You couldn’t mistake Mr Ueda for a hawk by any stretch of the imagination,” he said, referring to the BOJ governor.

After introducing yield curve control (YCC) in 2016, the BOJ had little trouble controlling bond yields when inflation remained well below its target. That changed last year, when soaring commodity prices pushed inflation above the 2% target and gave investors reason to attack the yield cap.

“The commitment to maintain negative rates should help to dampen speculation over rate hikes through the rest of this year, helping to dampen upward pressure on yields and the yen,” Lee Hardman, a strategist at MUFG, said.

Joey Chew, head of Asia FX research at HSBC, said it seemed unlikely that there would be an end to the volatility of the dollar/yen pair any time soon.

“With short JPY speculative positions being cut dramatically recently, the market could be prone to a squeeze,” he said.

Investors are currently holding a short position in the yen worth $8.13 billion, but that’s down from a 14-month high the previous week, after speculators delivered the biggest cut to those bearish bets since March.

CENTRAL BANK WEEK

Earlier this week, the U.S. Federal Reserve and European Central Bank hiked policy rates by 25 basis point, as expected.

However, the ECB raised the possibility of a pause in September as inflation pressures show tentative signs of easing with recession worries mounting.

“There is the possibility of a hike (next time). There is the possibility of a pause. It’s a decisive maybe,” ECB President Christine Lagarde said on Thursday.

The euro erased earlier losses and rose 0.3% to $1.1012, after having fallen 1% the previous day. It was still heading for a weekly drop of 1%, its largest weekly fall since mid-May.

On Wednesday, the Fed left the door open to more rate hikes, though Fed Chair Jerome Powell gave few hints about the September meeting.

“Both central banks have retained a hawkish bias, but the Fed looks more likely to hike again while the data is telling us the ECB is probably done,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:).

The Fed is having to balance its fight against inflation with an economy that is showing signs of slowing, but is still growing faster than expected and a robust labour market.

Forex

Dollar now priced for perfection – BoA Securities

Published

23 hours ago

January 8, 2025

Investing.com – The US dollar has rallied strongly since the US Presidential election, from an already high level, and Bank of America Securities sees the currency now priced to perfection.

In real effective terms, BoA estimated that the dollar ended 2024 at a 55-year high, following the longest uptrend in recent decades, which started in mid-2011.

“The USD has also reached extreme levels in nominal terms. Using the BIS NEER broad index (nominal effective exchange rate), the USD is the strongest it has been in the last 30 years, which is when the time series started,” said analysts at BoA Securities, in a note dated Jan. 8.

The dollar appears overvalued by 18.5%, the most in the last 30 years except when it was overvalued by 19% during the energy shocks from the war in Ukraine in 2022, the bank said.

Its overvaluation increased by about 6.4% since the end of Q3 last year, to a large extent because of the US election. By comparison, it was overvalued only by 9.4% at the end of 2016, after Trump won his first US election.

Looking at G10 equilibrium estimates, the USD clearly stands out as the most overvalued – followed by CHF, with JPY and the Scandies being the most undervalued.

“We expect the USD to remain strong in the short term on the back of US inflationary policies, and particularly tariffs, but to weaken later in the year, as these policies take a toll on the US economy while the rest of the world responds. Policy uncertainty makes our baseline subject to substantial risks,” said BoA Securities.

Forex

Dollar boosted by rising Treasury yields; euro slips on weak data

Published

23 hours ago

January 8, 2025

Investing.com – The US dollar rose Wednesday, benefiting from rising bond yields after the release of healthy US economic data, while weak German industrial orders weighed on the euro.

At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 108.690.

Dollar gains as Treasury yields soar

The dollar has continued to push ahead Wednesday, following on from the prior session’s positive tone after data showed US unexpectedly rose in November, layoffs were low, while services sector activity accelerated in December and a measure of prices paid for inputs hit a two-year high.

This resulted in 10-year Treasury yields climbing to an eight-month high, while the benchmark 30-year yield came close to the 5% level.

“Yesterday’s US data releases were hawkish for the Fed, and the implied probability of a March rate cut has now dropped below 40%,” said analysts at ING, in a note.

“The most remarkable print was the ISM prices paid subcomponent, which spiked to the highest level since January 2023. If a generally resilient economy was already accounted for when the Fed met in December, a resurgence in inflation concerns could drive an even further hawkish tuning in the policy message.”

The Federal Reserve cut the number of rate cuts it sees this year to two at its December meeting, but traders are now only pricing in around 37 bps of easing through this year, according to LSEG data.

There is more data to digest Wednesday, in the form of the monthly and weekly , ahead of Friday’s release of the closely watched US for further clarity on the health of the world’s largest economy.

German economic weakness weighs on euro

In Europe, fell 0.2% to 1.0326, adding to the losses of around 0.5% overnight after the release of more disappointing economic data from the region’s largest economy – Germany.

fell 5.4% in November, sapped by a decline in large orders, while the country’s fell 0.6%, bursting hopes for a boost from pre-Christmas promotions like Black Friday and Cyber Monday.

Investors are currently looking for the to ease interest rates by around 100 basis points in the first half of 2025.

“There is only a speech by French central bank governor Villeroy to watch in the eurozone calendar today. EUR/USD may find decent support at 1.0300 for now,” said ING.

traded 0.2% lower to 1.2447, with little in the way of economic data due for release Wednesday, and only a speech from Bank of England Deputy Governor Sam Woods to digest.

The held interest rates unchanged last month, and is expected to proceed cautiously with further rate cuts this year with inflation still above target.

Yuan sentiment remains weak

In Asia, rose 0.1% to 7.3511, with the Chinese currency hitting its weakest level in 17 years earlier in the week.

Sentiment remains weak surrounding China ahead of President-elect Donald Trump’s inauguration on Jan. 20, with Trump having vowed to impose steep trade tariffs on China.

gained 0.1% to 158.19, after recovering marginally from its weakest level in nearly six months.

The yen stemmed its recent losses after government officials offered a verbal warning on potential currency market intervention, which saw traders adopt more caution in shorting the Japanese currency.

Forex

Dollar strengthens on elevated US bond yields, tariff talks

Published

23 hours ago

January 8, 2025

By Tom Westbrook and Greta Rosen Fondahn

SINGAPORE/GDANSK (Reuters) -The dollar rose for a second day on Wednesday on higher U.S. bond yields, sending other major currencies to multi-month lows, with a report that Donald Trump was mulling emergency measures to allow for a new tariff program also lending support.

The already-firm dollar climbed higher on Wednesday after CNN reported that President-elect Trump is considering declaring a national economic emergency as legal justification for a large swath of universal tariffs on allies and adversaries.

The was last up 0.5% at 109.24, not far from the two-year peak of 109.58 it hit last week.

Its gains were broad-based, with the euro down 0.43% at $1.0293 and Britain’s pound under particular pressure, down 1.09% at $1.2342.

Data on Tuesday showed U.S. job openings unexpectedly rose in November and layoffs were low, while a separate survey showed U.S. services sector activity accelerated in December and a measure of input prices hit a two-year high – a possible inflation warning.

Bond markets reacted by sending 10-year Treasury yields up more than eight basis points on Tuesday, with the yield climbing to 4.728% on Wednesday.

“We’re getting very strong U.S. numbers… which has rates going up,” said Bart Wakabayashi, Tokyo branch manager at State Street (NYSE:), pushing expectations of Fed rate cuts out to the northern summer or beyond.

“There’s even the discussion about, will they cut, or may they even hike? The narrative has changed quite significantly.”

Markets are now pricing in just 36 basis points of easing from the Fed this year, with a first cut in July.

U.S. private payrolls data due later in the session will be eyed for further clues on the likely path of U.S. rates.

Traders are jittery ahead of key U.S. labour data on Friday and the inauguration of Donald Trump on Jan. 20, with his second U.S. presidency expected to begin with a flurry of policy announcements and executive orders.

The move in the pound drew particular attention, as it came alongside a sharp sell-off in British stocks and government bonds. The 10-year gilt yield is at its highest since 2008. [GB/]

Higher yields in general are more likely to lead to a stronger currency, but not in this case.

“With a non-data driven rise in yields that is not driven by any positive news – and the trigger seems to be inflation concern in the U.S., and Treasuries are selling off – the correlation inverts,” said Francesco Pesole, currency analyst at ING.

“That doesn’t happen for every currency, but the pound remains more sensitive than most other currencies to a rise in yields, likely because there’s still this lack of confidence in the sustainability of budget measures.”

Markets did not welcome the budget from Britain’s new Labour government late last year.

Elsewhere, the yen sagged close to the 160 per dollar level that drew intervention last year, touching 158.55, its weakest on the dollar for nearly six months.

Japan’s consumer sentiment deteriorated in December, a government survey showed, casting doubt on the central bank’s view that solid household spending will underpin the economy and justify a rise in interest rates.

hit 7.3322 per dollar, the lowest level since September 2023.