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Marketmind: It’s raining – or draining? – yen

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Marketmind: It's raining - or draining? - yen
© Reuters. A banknote of Japanese yen is seen in this illustration picture taken June 15, 2022. REUTERS/Florence Lo/Illustration

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

The spotlight currently shining on Japan’s yen, and speculation around whether Tokyo will intervene to prevent further depreciation, will likely intensify on Tuesday with traders poised to push the currency to a fresh 33-year low.

Chinese President Xi Jinping’s visit to San Francisco on Tuesday for the Asia-Pacific Economic Cooperation leaders summit – where he will meet U.S. President Joe Biden the next day – will grab much of the news headlines, but probably won’t move markets much.

Before those face-to-face talks, and absent major Asian economic data releases or policy events, the greatest potential for market-moving action on Tuesday could be in currencies.

The yen hit its lowest level in more than a year on Monday, near the key psychological level of 152.00 per dollar, but rallied sharply amid a flurry of options-related trading.

Market participants say there has been no sight of Japanese authorities in the market – not yet, anyway – and Japanese Finance Minister Shunichi Suzuki reiterated that the government will keep monitoring the FX market and respond appropriately.

Currency traders may be tempted to test Tokyo’s resolve again on Tuesday. The policy pressures facing Japanese authorities are intense, and the potential risks to financial markets if policymakers misstep are growing.

After battling against deflation for decades, the Bank of Japan is moving away from ultra-loose policy. It’s a delicate and complicated path to navigate though.

Bond yields are the highest in a decade and rising, the yen is the weakest in decades, stocks are near their highest in more than three decades, and according to Goldman Sachs, financial conditions are the loosest in more than three decades.

As Deutsche Bank’s George Saravelos put it on Monday, normalizing policy and unwinding the world’s biggest carry trade – which he pegs at $20 trillion – will not be easy or pain free.

More broadly, investors in Asia go into Tuesday’s session on a reasonably strong footing following Monday’s gains, but with little impetus to add to them.

The MSCI emerging market and Asia ex-Japan indexes both snapped four-day losing streaks on Monday, rising 0.5% and 0.6%, respectively, but trading on Wall Street was listless. It was also listless in U.S. Treasuries, although this is perhaps a good thing given that Moody’s (NYSE:) cut the U.S. credit ratings outlook on Friday.

In corporate news, the major earnings releases on Tuesday include Japanese financial giants Mitsubishi UFJ (NYSE:) and Sumitomo Mitsui (NYSE:) Financial Group, while figures are expected to show that India’s annual wholesale price inflation rate, which has been negative since April, was -0.2% in October.

Here are key developments that could provide more direction to markets on Tuesday:

– India wholesale price inflation (October)

– Chinese President Xi Jinping visits the U.S.

– Fed’s Jefferson, Barr, Mester and Goolsbee all speak

(By Jamie McGeever; Editing by Josie Kao)

Forex

Dollar bounces after Fed-inspired losses; sterling gains ahead of BoE

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Investing.com – The U.S. dollar edged higher Thursday, bouncing off its over one-year low after the Federal Reserve announced an outsized interest rate cut, while sterling gained ahead of the Bank of England’s latest policy-setting meeting. 

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 100.410, having fallen to a more than 12-month low in the previous session.

Large Fed cut confirmed 

The started its latest rate-cutting cycle on Wednesday, trimming interest rates for the first time since March 2020 by a hefty 50 basis points to a range of 4.75% to 5%.

Fed Chair Jerome Powell said that risks between higher inflation and more labor market weakness were now evenly balanced, and that the central bank was likely to cut rates further amid growing confidence that inflation will fall.

But Powell also said that the bank had no intention of returning to an ultra-low rate regime as seen during the pandemic, and that the Fed’s neutral rate will now be much higher than seen in the past. 

“Where does the Fed’s decision leave the dollar,” analysts at ING ask, in a note. “In our view, still in a softer position compared to most developed market peers. Powell tried to mitigate the dovishness of the outsized rate cut, but that it would be hard to fight the perception that it was the dovish market pricing that pushed the Fed over the line for the 50bp move. If the Fed is perceived as unwilling to disappoint market expectations, investors may continue to prefer erring on the dovish side.”

Attention turns to the release of the weekly data, for the latest clues over the health of the important labor market.  

Sterling in demand ahead of BoE meeting

In Europe, rose 0.3% to 1.3253, after climbing to 1.3298 in the previous session, its strongest level since March 2022.

The meets later in the session, and is expected to hold its key interest rate at 5%, after kicking off its easing with a 25-bp reduction in August.

“The inflation picture simply hasn’t improved enough to warrant more easing just yet,” said ING.

UK came in at 2.2% on an annual basis last month, close to the bank’s medium-term target, but services inflation is running hot at an annual 5.6%.

traded 0.3% higher to 1.1149, not far from the three-week high hit in the previous session.

The cut rates for the second time this year last week, but a degree of uncertainty exists over when the next move will be.

Eurozone inflation is still not as low as the ECB would like, Bundesbank President Joachim Nagel said on Wednesday, so interest rates need to remain sufficiently high to resolve price pressures.

While inflation fell to 2.2% in August and may fall even closer to the ECB’s 2% target this month, it will likely rise again towards the end of the year and could end 2024 around 2.5%.

Yen retreats ahead of BOJ meeting

rose 0.3% to 142.75 as traders also positioned for no changes to local interest rates after a meeting on Friday.

The central bank is widely expected to keep rates unchanged, but could still signal future rate hikes on an elevated outlook for inflation. 

Japanese is also due on Friday.

traded 0.2% lower to 7.0698, ahead of a decision by the People’s Bank of China on Friday. The central bank is expected to leave this key rate unchanged.

 

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Bullish bets steady on Asian currencies as Fed easing bets soften dollar, Reuters poll shows

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By Sameer Manekar

(Reuters) – Analysts remained bullish on most Asian currencies despite marginally dialling back some bets, a Reuters poll showed on Thursday, as a defensive U.S. dollar driven by a dovish Federal Reserve enhanced the appeal of risk-sensitive assets.

Long bets were the highest on the Malaysian ringgit and the Thai baht, with those on the latter at their peak since January 2023, driven by strong growth fundamentals and stabilising politics.

Responses to the fortnightly poll of 10 economists and analysts were received before the U.S. Federal Reserve’s half-point rate cut and Bank Indonesia’s surprise quarter-point rate cut on Wednesday.

Anticipation of Fed rate cuts pushed the dollar to the defensive, providing a much-needed breathing space for emerging markets and improving their allure. Most Asian currencies logged a stellar recovery in August against the dollar.

“We do not rule out further bouts of USD weakness in the weeks ahead and expect overall downward pressure on USD/Asia FX to be sustained,” analysts at Barclays said.

The is trending near 100 against a basket of major currencies, down from 104 at the end of July.

The analysts said they expect Asian currencies to continue to appreciating in the fourth quarter, but foresee a reversal in the first half of 2025.

Ryota Abe, an economist at Sumitomo Mitsui (NYSE:) Banking Corp, said the market view of Fed rate cuts by the year-end “looks excessive” which could lead to correction in Asian emerging market currencies.

Bullish bets on the Chinese yuan and Singapore dollar were dialled back to levels seen four weeks ago, while those on the Philippine peso hit a four-year peak.

Analysts were long on the Indonesian rupiah for the fourth consecutive iteration of the poll – the longest since May 2023 – underlining the recent appreciation stemming from robust economic fundamentals and growing inflows into emerging markets.

The rupiah has appreciated more than 6% since July and is expected to continue marching on after Bank Indonesia’s (BI) surprise rate cut decision to support growth, front-running the Fed.

Barclays analysts said BI will “likely broadly match or slightly under-deliver versus the Fed in terms of the magnitude of total cuts” which should not “necessarily see the IDR fall out of markets’ favour from a rates-differentials perspective”.

The Indian rupee continued to remain out of analysts’ favour, although short positions were halved since early August as the currency staged a recovery following a sell-off driven by the unwinding of yen carry trades.

The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

The survey findings are provided below (positions in U.S. dollar versus each currency):

DATE

19-Sep-24 -0.67 -0.9 -1.12 -1.18 -0.66 0.33 -1.3 -1.1 -1.33

05-Sep-24 -0.85 -1.09 -1.26 -1.05 -0.77 0.21 -1.46 -1.00 -1.22

22-Aug-24 -0.62 -0.93 -1.08 -1.26 -0.70 0.21 -1.57 -1.03 -1.16

08-Aug-24 -0.02 0.05 -0.61 -0.02 0.59 0.60 -0.78 -0.29 -0.57

25-Jul-24 1.07 0.79 -0.33 0.35 0.86 0.12 0.39 0.43 0.02

11-Jul-24 1.05 0.87 0.06 0.73 0.68 0.22 1.03 0.86 0.51

27-Jun-24 1.34 1.28 0.80 1.49 0.88 0.46 1.00 1.37 0.91

13-Jun-24 0.95 0.87 0.62 1.22 0.64 0.37 1.00 1.23 0.92

© Reuters. FILE PHOTO: U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

30-May-24 1.05 0.72 0.33 0.94 0.53 0 0.81 1.19 1.00

16-May-24 1.05 0.96 0.35 0.96 1.02 0.39 1.23 1.29 1.00

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Asia FX muted as dollar rises past bumper rate cut; yen down before BOJ

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Investing.com– Most Asian currencies moved in a flat-to-low range on Thursday as the dollar firmed sharply after an outsized interest rate cut by the Federal Reserve was offset by less dovish signals on future rates. 

The Japanese yen was among the worst performers for the day, retreating amid pressure from the dollar and as traders priced in no changes to interest rates by the Bank of Japan later this week. 

Broader Asian currencies were muted tracking mixed signals from the Fed. 

Dollar rises past 50 bps rate cut, Fed outlook less dovish 

The and both rose about 0.4% in Asian trade, extending overnight gains.

Strength in the greenback came even as the Fed – the higher end of market expectations- to a range of 4.75% to 5%.

Fed Chair Jerome Powell said that risks between higher inflation and more labor market weakness were now evenly balanced, and that the central bank was likely to cut rates further amid growing confidence that inflation will fall.

But Powell also said that the bank had no intention of returning to an ultra-low rate regime as seen during the pandemic, and that the Fed’s neutral rate will now be much higher than seen in the past. 

While traders were still pricing in at least 125 bps worth of cuts by end-2024, Powell’s comments spurred expectations that rates will be higher than initially expected in the medium and long term. 

This notion pressured most Asian currencies. 

Japanese yen weakens with BOJ on tap

The Japanese yen’s pair rose 0.6% to 143.12 yen and was among the worst performers in Asia. 

The currency was pressured by strength in the dollar, while traders also positioned for no changes to local interest rates after a on Friday.

The central bank is widely expected to keep rates unchanged, but could still signal future rate hikes on an elevated outlook for inflation. Japanese is also due on Friday.

Broader Asian currencies were mostly mixed. The Australian dollar’s pair rose 0.4%, buoyed by a stronger-than-expected reading on the in August. 

Strength in the labor market gives the Reserve Bank of Australia more headroom to keep rates high for longer, which it is more inclined to do amid signs of sticky inflation in the country. 

The Chinese yuan’s pair reversed early gains to trade sideways, with focus squarely on a l decision by the People’s Bank on Friday. The central bank is expected to leave the LPR unchanged.

The South Korean won’s pair jumped 1% as local trade resumed after three days of holidays. The country’s shrank slightly in August. 

The Indian rupee’s pair was flat, but moved further away from the 84 rupee level. The Singapore dollar’s pair was flat.

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