Forex
Dollar drops against yen but broadly stable after last week’s decline
By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The dollar fell to a three-week low against the yen on Monday but halted its recent slide against most other currencies as investors weighed the prospect of the Federal Reserve soon starting on a series of interest rate cuts.
The dollar slumped as much 0.7% to 143.45 yen, its weakest level since Aug. 5, and was last trading down 0.2%.
Against the euro and sterling, the greenback firmed slightly after having touched new multi-month lows on Friday when Fed Chair Jerome Powell endorsed an imminent start to interest rate cuts.
Traders were also keeping an eye on the fallout from escalating tensions in the Middle East that lifted oil prices by almost 3%. [O/R]
In a much-anticipated speech at the annual economic conference in Jackson Hole, Wyoming, Powell said “the time has come for policy to adjust,” prompting traders to seal bets of a 25 basis point (bps) rate cut in September and even boost their expectations of a super-sized 50 bps rate cut.
“Powell did not say anything new but officially validated some of the things that markets were pricing in, including the idea of a (rate) cut, shift of focus from inflation to labour market,” said Samy Chaar, chief economist at Lombard Odier in Geneva.
However, he did not see the dollar falling much more in the short term.
“Huge dollar weakness from here would mean that the market is not pricing in enough cuts which I feel is a bit of an exaggeration,” Chaar added.
The – which measures the currency against a basket of six major peers – edged up to 100.82, coming off the 13-month low of 100.60 reached at the end of last week. Trading activity was expected to be lighter than usual, with UK markets closed for a public holiday.
YEN STILL FIRM
Helping the yen strengthen, Bank of Japan chief Kazuo Ueda reaffirmed on Friday his resolve to raise interest rates if inflation stayed on course to sustainably hit the 2% target.
Many market participants expected Ueda to strike a less hawkish tone in a special session of parliament, which was called amid criticism the BOJ’s surprise hike last month helped spark a rapid unwind of bearish yen bets and an aggressive sell-off of Japanese stocks.
The U.S. currency hovered near its lowest in 13 months against the euro, and was closer to levels last seen in March 2022 versus sterling, with Bank of England head Andrew Bailey’s comments that it was “too early to declare victory” over inflation signalling a less aggressive stance on interest rate cuts than the Fed.
Sterling eased 0.2% to $1.3190 after jumping as high as $1.32295 on Friday for the first time in 17 months.
Sources told Reuters that ECB policymakers are lining up behind another rate cut on Sept. 12. The euro slipped 0.2% to $1.1167, but not far from its session high of $1.1205, a level last seen in July of last year.
The Swiss franc edged up to 0.8475 per dollar, its strongest level since Aug. 5.
Elsewhere, the Australian dollar retreated 0.4% to $0.6768, but remained not far from Friday’s peak of $0.6799, the highest level since July 11.
UBS advised investors to sell any potential short-term gains in the US dollar, adopting a more bearish stance on the currency for the medium term. The firm anticipates a possible corrective rebound in September, particularly if the Federal Reserve’s hesitancy to implement rate cuts greater than 25 basis points aligns with the seasonal trend of the US dollar outperforming during this month.
The current market positioning data indicates that the fast money shorts against the dollar are predominantly in the Euro (EUR) and British Pound (GBP), with both currencies potentially vulnerable in the near term. However, UBS views the GBP as a buy on dips, citing a more supportive domestic rates outlook and historical patterns of a strong recovery in sterling from late October to early November.
In contrast, the Japanese Yen (JPY) positioning is relatively neutral, suggesting the unwinding of short-term yen-funded carry trades. The Yen is also gaining from the return of its inverse correlation with equities, which has elevated it to one of the top performers in the G10 currencies.
Moreover, the Swiss Franc (CHF) has performed well and, without significant intervention from the Swiss National Bank (SNB), is expected to remain supported as residual franc shorts are covered. UBS has set a target for at 0.93.
The firm’s updated cross-border mergers and acquisitions tracker reveals a deal balance that is most negative for the Euro (EUR), Australian Dollar (AUD), and Swedish Krona (SEK), but positive for the GBP and JPY. For Australia, the tracker indicates a moderation in the rising trend of the Foreign Direct Investment (FDI) balance, which has reached a 12-month surplus of 2.1% of GDP in the second quarter, the highest since pre-Covid times. This is supported by strong demand for Australian fixed income, which is helping to offset a widening current account deficit.
UBS notes that Australian goods export volumes have remained stable, suggesting that the worsening trade balance is due to falling commodity export prices and rising import volumes. However, they believe the impact on the AUD may be limited as the currency did not significantly appreciate during the post-Covid commodity price surge, and the increase in imports may reflect strong domestic demand, which is why UBS maintains a constructive outlook on the AUD.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
BCA Research provided insights into the anticipated monetary policy actions by central banks in China and the United States. The research firm expects Chinese authorities to lower interest rates on existing mortgage loans, while the Federal Reserve is predicted to begin its monetary easing cycle.
According to BCA Research, a potential 100-basis-point cut in Chinese mortgage rates could save homeowners in China approximately RMB 300 billion ($44.7 billion) annually on interest payments.
Despite these potential savings, BCA Research suggests that the impact on China’s broader economy would be limited. The firm points out that subdued consumption is likely to persist due to factors such as weak labor market prospects, slower income growth, and household reluctance to take on new debt.
BCA Research also commented on the recent appreciation of the (RMB), deeming it unsustainable over the next six months. The firm believes that even with the Federal Reserve’s easing, the U.S. economy is not likely to be steered away from a recession. In this context, BCA Research views the U.S. dollar as a counter-cyclical currency that is expected to rebound.
Looking ahead, BCA Research anticipates that a U.S. recession could evolve into a global trade contraction by early 2025. The firm points to China’s economic vulnerability to such a downturn, which could negatively affect the value of the RMB.
Moreover, BCA Research forecasts that China will continue to experience disinflationary or deflationary pressures, necessitating the central bank to keep policy rates low. This environment of low interest rates coupled with modest growth is anticipated to restrain any significant appreciation of the Chinese yuan against the U.S. dollar.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com– Most Asian currencies gained ground on Wednesday as the dollar retreated in the wake of a fiery U.S. presidential debate, with focus turning to key upcoming inflation data due later in the day.
The Japanese yen was among the biggest beneficiaries of this trade, with increased safe haven demand after the debate putting the yen at its strongest level since early-January. The yen also benefited from somewhat hawkish-leaning comments from Bank of Japan officials.
Broader Asian currencies advanced on Wednesday, seeing some relief from a softer dollar. But regional markets were still nursing steep losses over the past week amid waning risk appetite.
Dollar dips after presidential debate; CPI awaited
The and both fell about 0.2% in Asian trade, with losses in the greenback coming in the wake of a fiery presidential debate between Kamala Harris and Donald Trump.
The debate furthered expectations for a hotly contested 2024 presidential race, which could present a major point of uncertainty for markets, given the contrasting views on policy pushed by both candidates. Harris and Trump both veered from the presented topics to engage in personal attacks against each other.
The dollar was also on the backfoot ahead of key inflation data due later in the day, which is widely expected to provide more cues on interest rates.
The reading comes just a week before a , where investors expect the central bank to cut rates by at least 25 basis points.
Japanese yen at 8-mth high on safe haven demand, BOJ hawkspeak
The yen was the best performer in Asia, with the pair falling 0.8% to 141.38 yen- its lowest level since early-January.
The currency benefited from some safe haven plays, as uncertainty over the U.S. election ramped up after Tuesday’s debate.
But a main point of support for the yen was hawkish comments from BOJ member Junko Nakagawa, who said that the central bank will continue to raise interest rates if inflation moves in line with its forecast.
Nakagawa’s comments come following a slew of hawkish signals from the BOJ, and were also made just a week before a BOJ meeting. Investors are uncertain over another rate hike by the central bank, following a 15 basis point raise in late-July.
Broader Asian currencies advanced, albeit slightly, as focus turned to the upcoming U.S. CPI reading.
The Chinese yuan’s pair fell 0.1%, but the yuan remained on the backfoot as U.S. policymakers proposed several more trade restrictions against Beijing.
The South Korean won’s pair fell 0.3%, while the Singapore dollar’s pair shed 0.2%.
The Indian rupee’s pair steadied near 84 rupees, while the Australian dollar’s pair was flat after sliding from over nine-month highs over the past week.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Forex2 years ago
Unbiased review of Pocket Option broker
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Stock Markets2 years ago
Morgan Stanley: bear market rally to continue
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
