Forex
Yen jumps and dollar slips as traders eye interest rate tweaks
© Reuters. A bank employee counts U.S. dollar notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023. REUTERS/Athit Perawongmetha/File Photo
By Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The yen rallied against the dollar for a fourth straight session on Tuesday as investors positioned for the possibility that the Bank of Japan will tighten monetary policy next year while the U.S. Federal Reserve loosens.
Also weighing on the dollar and boosting the yen was a rally in China’s yuan, which rose to an almost four-month high.
The dollar hit its lowest level since mid-September at 147.16 yen and was last down 0.53% at 147.6.
More broadly, the , a gauge of the greenback against six other currencies, fell to its lowest since late August at 103.17 and was last 0.13% weaker at 103.32.
“There has been a lot of excitement, momentum is building, about the ability of the Bank of Japan to exit its ultra-loose monetary policy… possibly next year, ending negative interest rates,” said Jane Foley, head of FX strategy at Rabobank.
Foley said a sharp drop in the dollar was also encouraging investors to unwind some of their bets against the yen. “The dollar is weaker, and this I think is just the catalyst for the market making bets on how far dollar-yen can really move,” she said.
China’s yuan hit an almost four-month high of 7.13 per dollar and was last at 7.138.
The People’s Bank of China set the midpoint of the yuan’s trading band at its strongest since Aug. 7.
“We think the sizable rally in the is the primary driver of the stronger yen this week as it is lifting (Asian) FX as a whole,” said Simon Harvey, head of FX analysis at Monex Europe.
The euro rose to its highest since mid-August at $1.0966 on Tuesday and was last slightly higher at $1.0944.
Sterling was up 0.26% at $1.2538, after hitting a two-month high of $1.2554. Bank of England Governor Andrew Bailey on Monday said it was “far too early to be thinking about rate cuts” in Britain.
U.S. Treasury yields have tumbled as investors have wagered that the Federal Reserve will cut interest rates next year, after a slowdown in U.S. inflation in October.
That has dragged the dollar index down from an almost one-year high at the start of October, when U.S. economic data was consistently beating expectations.
The was on track to fall for a fourth session running on Tuesday to 4.39%, after dipping on Monday in the wake of a solid auction of 20-year bonds. It hit a 16-year high above 5% in October.
Elisabet Kopelman, U.S. economist at lender SEB, said: “Strong risk appetite and speculation about future interest rate cuts are not a good environment for the dollar.”
Minutes from the Fed’s last meeting are due at 1900 GMT and headline the day ahead, along with a speech from European Central Bank President Christine Lagarde.
Some analysts caution that the dollar’s downward momentum may not have too much further to run. “There is a risk that we are going to get push-back about the pace of Fed easing,” said Foley.
Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee ended at its record closing low on Thursday, but was little changed versus the previous session, as the central bank’s intervention helped negate the incessant dollar demand from importers.
The rupee ended at 83.9825 to the U.S. dollar compared to 83.9650 in the previous session. Intraday volatility was muted, similar to the activity in recent sessions, with the local currency trading in a 2 paisa range.
The Reserve Bank of India yet again sold dollars to support the rupee, which prevented it from slipping past the crucial 84 level.
“The RBI was at it through most of today’s session. There is obviously just no way of knowing when the RBI will decide that it has had enough of defending 84,” a currency trader at a bank said.
The rupee needed the central bank’s help even on a day when the dollar was weak across the board.
Weak U.S. job opening data pushed the odds of a 50-basis-point Federal Reserve rate cut this month higher to 45%, prompting traders to dump the dollar.
“The rupee today completely disregarded the dollar’s decline, like it has been doing for a number of weeks now,” Kunal Kurani, associate vice president at Mecklai Financial said.
“Now let’s see whether Friday’s (U.S.) job report will change things.”
August’s U.S. non-farm payrolls data is being considered the most important jobs report in a long time in the wake of comments by Federal Reserve Chair Jerome Powell that further weakening in the labour market will not be welcome.
Friday’s report will decide whether the Fed will cut rates by 25 bps or 50 bps at the Sept 17-18 meeting. Right now, the futures market indicates that it is a toss-up.
By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
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