Forex
Yen jumps on suspected intervention, sterling hits one-year high
(This July 17 story has been corrected to change the company name to BNY from BNY Mellon (NYSE:) in paragraph 7)
By Rae Wee and Dhara Ranasinghe
SINGAPORE/LONDON (Reuters) – The yen rose sharply on Wednesday in what traders suspected was likely the result of another intervention from Japanese authorities to prop up the battered currency from multi-decade lows.
The move in the yen was the standout in a busy day in currency markets, where the pound jumped after hotter than expected British inflation data and the dollar dipped across the board, with the dropping to a four-month low.
The dollar was last 1% lower against the yen at 156.75, extending its sudden fall shortly after the London trading session began, a move traders attributed to Japan’s intervention.
At one point, the dollar reached as low as 156.1 yen, having been at a 38-year high of 161.96 yen in early July.
Japan’s Ministry of Finance did not respond to requests for comment. Japan’s top currency diplomat Masato Kanda said he would have to respond if speculators caused excessive moves and that there was no limit to how often authorities could intervene, Kyodo News reported.
Bank of Japan data suggests Japan bought nearly 6 trillion yen via intervention last Thursday and Friday.
“Current valuations are still stretched and the yen is still undervalued, so a bit more activism in FX markets from Japan is the way to correct any misalignments,” said Geoff Yu, senior macro strategist at BNY in London.
“But we have to wait for an official confirmation.”
The yen also made outsized gains against other currencies. The euro was last down 0.7% at 171.34 yen, while sterling fell 0.62% to 204.2yen.
INFLATION AND RATES
Elsewhere, the British pound rose 0.5% and hit a one-year high against the dollar of $1.3032 on data that showed UK inflation rose slightly more than expected.
Headline inflation held at 2% on an annual basis in June against forecasts for a 1.9% increase, while the closely watched services inflation came in at 5.7%.
That sent traders paring back bets of a rate cut from the Bank of England in August.
“Today’s strong services inflation numbers suggest the upcoming decision will be a close call,” said analysts at Nomura. “Much will now hinge on tomorrow’s labour market report, and specifically pay growth.”
The pound also strengthened to a near two-year top on the euro, which fell 0.18% to 83.85 pence, its lowest since August 2022.
There was volatility elsewhere too. The Swiss franc strengthened with the low-yielding, safe-haven currency possibly caught up in the ructions involving the yen, which has similar properties.
The dollar was down 0.66% on the franc at 0.8877, while the euro dipped 0.4% to 0.9706.
The euro gained against the dollar however, and was up 0.3% at $1.0933, a four-month high, while the Australian dollar tacked on 0.15% to $0.6747.
That left the dollar index, which tracks the unit against six peers, down 0.46% at 103.75.
Signs that inflation is slowing in the United States, boosting investor confidence that rate cuts are coming, has been weighing on the broad dollar.
Investors have fully priced in a rate cut from the Fed come September, and are expecting more than 60 basis points worth of easing by the year end.
While Tuesday’s U.S. retail sales data pointed to consumer resilience and bolstered second-quarter growth prospects, it failed to alter market views.
The New Zealand dollar was last 0.64% higher at $0.6087, helped by Wednesday’s data that showed domestically driven inflation remained high in the second quarter, even as the headline figure missed expectations.
Still, markets are sticking to bets of about three rate cuts from the Reserve Bank of New Zealand this year.
Forex
Dollar bounces after sharp loss; euro retreats on Lagarde comment
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Forex
Asia FX muted, dollar slips from 2-yr high on soft inflation data
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Forex
Dollar to weaken less than expected next year: UBS
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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