By Yasin Ebrahim
Investing.com — The yen creeped higher against the dollar Tuesday, riding a wave of hawkish bets on the Bank of Japan moving further away from its dovish stance ahead of a monetary policy update due overnight Wednesday.
fell 0.26% to 128.20
The Bank of Japan is expected to stand pat on interest rates, but many are betting that the central bank could ditch its cap on the yield after doubling it to 0.5% from 0.25% last month.
BoJ governor Kuroda Haruhiko has previously suggested that the monetary policy surprise last month — that sent the yen soaring against the dollar – was an aberration and not the start of a new era of less hawkish monetary policy measures.
Kuroda said the move was needed to correct distortions in the yield curve after global bond pressures forced Japanese government bonds higher.
But investors aren’t buying it. They’ve continued to probe with wave after wave of selling pressure on Japanese government bonds, pushing prices lower and yields higher. The 10-year yield on the Japanese bond breached the 0.5% cap for three consecutive trading days.
The probing attacks have forced the BoJ into record bond purchases to defend the cap, which if abandoned, some estimate, would provide the yen with the firepower to inflict major damage on the dollar.
In a scenario of a nearer-term exit of the yield curve control framework, Goldman Sachs estimates that the USD/JPY could shed roughly 3% — or a decline to levels just below 125 versus the current spot.
If Kuroda, however, holds firm and doesn’t abandon or tweak the cap, the bets on the end of yield curve control will likely be kicked down the road as the clock is ticking down on his retirement due April 8.
“Kuroda will hold his nerve, leave the current framework intact this week and ultimately also leave it for his successor to disband the YCC framework later in the year,” Daiwa Securities said.
The central bank’s monetary policy decision is also expected to be accompanied by a fresh projection on inflation that could provide further clues on whether the winds of monetary policy change are gathering steam.
The latest data, released earlier this month showed that price pressure rose to 4% in December year-on-year, double the BoJ’s target and the highest since 1981.
The BoJ is expected to lift its inflation forecast to 1.8% year-on-year for the next fiscal year and 2% in fiscal 2024, from its current forecast of 1.6% for each year, according to Daiwa Securities.
Signalling that inflation will hit the central bank’s 2% target “in a couple of years’ time used to justify the current policy stance rather than motivate a further adjustment,” it added.
Asia FX dips as Fed jitters weigh, China GDP offers little support
By Ambar Warrick
Investing.com — Most Asian currencies moved in a flat-to-low range on Tuesday as growing concerns over the path of U.S. monetary policy kept traders wary of risk-driven assets, while stronger-than-expected Chinese economic data did little to improve sentiment.
rose slightly after data showed that in the first three months of 2023 grew a bigger-than-expected 4.5%, after the country relaxed most anti-COVID restrictions earlier this year.
While the reading indicates that an economic recovery in the country is on track, other readings furthered the notion that a rebound has so far been largely uneven. Softer-than-expected data in particular highlighted continued weakness in the manufacturing sector.
Investment in China’s property sector also slowed, a trend that could weigh on growth later this year. Still, a recovery in China bodes well for the broader Asian economy, given the country’s position as a dominant trading hub.
But most other Asian currencies fell on Tuesday, coming under pressure from strength in the dollar and Treasury yields as markets reassessed their expectations for how high U.S. interest rates will rise.
Risk-heavy Southeast Asian currencies bore the brunt of selling, with the and the down 0.4% each. The was flat after falling sharply overnight, also coming under pressure from new Bank of Japan Governor Kazuo Ueda stating that the bank’s ultra-loose policy will remain for now.
Among outliers for the day, the rose 0.2% as the minutes of the Reserve Bank’s recent meeting showed that the bank may yet hike interest rates further, despite a pause in April.
The and fell slightly on Tuesday, but marked a strong recovery from one-year lows over the past two sessions. show that markets are pricing in a nearly 90% chance the Fed will hike rates by 25 basis points (bps) in May, with a small, but growing possibility of a similar hike in June.
Treasury yields also rose in overnight trade, as hawkish signals from Fed officials and some stronger-than-expected data pushed up fears of more hikes. Focus is now on a slew of Fed speakers in the coming days, ahead of the on May 3.
The prospect of rising U.S. interest rates bodes poorly for Asian currencies, given that it narrows the gap between risky and low-risk yields. Bank of International Settlements head Agustín Carstens also warned that interest rates may need to stay higher for longer due to high inflation and rising risks of instability in the global economy.
Dollar gains after strong New York factory survey
© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic/Illustration
By Herbert Lash and Harry Robertson
NEW YORK/LONDON (Reuters) – The dollar rose on Monday after New York state factory activity in April increased for the first time in five months, helping bolster expectations the Federal Reserve will raise interest rates in May.
Also bolstering the dollar was a report showing confidence among U.S. single-family homebuilders improved for a fourth straight month in April.
The , a measures of the currency against six major peers, rose 0.413% after the Empire State Manufacturing index shot to 10.8 from -24.6 in March, far higher than expectations of -18 in a Reuters poll of 35 economists.
The new orders index rose 47 points to 25.1, while the shipments index added 37 points to 23.9, substantial increases after they had declined in recent months, the New York Fed said.
“It’s the best reading since last July with a big jump in orders and has taken the dollar higher on this,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“The economy still looks like it’s growing above what the Fed says is its speed limit,” he said. “The market is under-estimating chances of another hike after May. Now the market says the Fed is going to cut later, but I think that the economy is showing itself to be resilient.”
GRAPHIC: Empire State https://www.reuters.com/graphics/USA-STOCKS/zdvxdawervx/empirestate.png
Futures trading showed the probability of the Fed raising its lending rate to a range of 5.00%-5.25% when policymakers conclude a two-day meeting on May 3 rose to 88.7% from 78% on Friday, CME Group’s (NASDAQ:) FedWatch Tool showed.
Fed funds futures also showed that expectations the Fed will start cutting rates later this year were pushed back to November from September, with a smaller cut now anticipated.
The outlook of U.S. interest rates relative to the monetary policies and economies of other countries can boost or erode the dollar’s value.
The euro slid 0.66% to $1.0926 after hitting a one-year high of $1.108 on Friday. Traders expect further interest rate hikes from the European Central Bank as last month’s banking crisis fears have faded.
The yen weakened 0.45% at 134.40 per dollar as the Bank of Japan stuck to its easy-money policies, helping the greenback rise to its highest level since March 15.
“The dollar has bounced back but also we’ve had comments from the Bank of Japan indicating that there is no real reason for them to pull back from their ultra easy policy,” said Jane Foley, head of FX strategy at Rabobank.
New Bank of Japan Governor Kazuo Ueda last week made clear that the country would remain a “dovish” outlier by keeping interest rates at ultra-low levels for the time being.
GRAPHIC: Dollar hits one-month high against yen https://www.reuters.com/graphics/GLOBAL-FOREX/jnpwylzabpw/chart.png
Sterling was last trading at $1.2374, down 0.31% on the day.
The Mexican peso lost 0.11% versus the dollar to trade at 18.04, while the Canadian dollar fell 0.25% versus the greenback to 1.34 per dollar.
Dollar drifts higher as US debt ceiling in spotlight
© Reuters. FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The dollar edged higher on Tuesday in choppy trading, with no clear direction, as investors kept an eye on debt ceiling talks to avert a possible default that could reverberate across asset markets and damage confidence in the world’s largest economy.
The , a measure of the greenback’s value against six major currencies, was up 0.2% on the day at 102.61. Against the yen, the greenback rose 0.2% to 136.315 yen
Democratic President Joe Biden and top congressional Republican Kevin McCarthy’s U.S. debt ceiling negotiations ended on Tuesday after less than an hour, as the looming fear of an unprecedented American debt default prompted Biden to cut short an upcoming Asia trip. But the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, “It is possible to get a deal by the end of the week.”
Both parties agree on the need for urgent action.
“Clearly, to the extent that there is a default risk, it would be chaotic. The question is in a default, can you have Treasuries as collateral in a world that’s highly levered?” said Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California.
Historically speaking, the U.S. dollar tends to rally in times when there is financial stress and in periods of deleveraging as investors scramble to unwind risky bets.
“But you don’t want Treasury bills,” Merk said. “So it’s very difficult to suggest that we would have a dollar rally in that deleveraging. I would say it’s very hard to predict what will happen other than volatility might be dramatic.”
In afternoon trading, the euro slipped 0.1% versus the dollar to $1.0858, while sterling fell 0.4% to $1.2478.
The dollar earlier rose after U.S. retail sales rose less than expected in April, but details showed that the underlying trend remained solid. This suggested that consumer spending likely remained strong early in the second quarter.
Retail sales rose 0.4% last month. Data for March was revised slightly lower to show sales dropping 0.7% instead of 0.6% as previously reported.
In line with the generally upbeat economic picture, industrial production jumped 1% in April, easily topping expectations for a flat reading and up slightly from the revised 0.8% increase in March.
The reports suggested that while the market widely expects the Federal Reserve to pause increasing rates at the next meeting, a hike in borrowing costs was not off the table.
“While there were some mixed signals in today’s various data reports, on net most were favorable and early in the quarter we’re continuing to track some upside risk to our 1.0% 1Q GDP growth projection,” wrote Michael Feroli, chief U.S. economist at J.P. Morgan, in a research note.
“Even so, given all the dark clouds on the horizon, we continue to see the Fed on hold at the next meeting in mid-June.”
Richmond Federal Reserve President Thomas Barkin on Tuesday doubled down though on the higher-for-longer mantra. He said he likes the “optionality” implied in the central bank’s latest policy statement, but he is “comfortable” with raising interest rates further if that is what is needed to lower inflation.
That has been the message from several Fed officials over the last week.
Currency bid prices at 3:54PM (1954 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 102.6200 102.4300 +0.20% -0.841% +102.6900 +102.1900
Euro/Dollar $1.0858 $1.0874 -0.14% +1.34% +$1.0905 +$1.0855
Dollar/Yen 136.3000 136.0950 +0.16% +3.97% +136.6750 +135.6800
Euro/Yen 147.99 148.01 -0.01% +5.48% +148.5000 +147.6200
Dollar/Swiss 0.8965 0.8956 +0.09% -3.05% +0.8970 +0.8920
Sterling/Dollar $1.2478 $1.2531 -0.42% +3.18% +$1.2546 +$1.2466
Dollar/Canadian 1.3481 1.3466 +0.13% -0.49% +1.3493 +1.3405
Aussie/Dollar $0.6653 $0.6700 -0.70% -2.40% +$0.6710 +$0.6651
Euro/Swiss 0.9734 0.9739 -0.05% -1.63% +0.9742 +0.9720
Euro/Sterling 0.8700 0.8678 +0.25% -1.63% +0.8718 +0.8680
NZ $0.6226 $0.6243 -0.14% -1.82% +$0.6260 +$0.6224
Dollar/Norway 10.7220 10.6000 +1.10% +9.20% +10.7370 +10.5930
Euro/Norway 11.6436 11.5214 +1.06% +10.96% +11.6725 +11.5195
Dollar/Sweden 10.4087 10.3480 +0.49% +0.01% +10.4251 +10.3188
Euro/Sweden 11.3008 11.2454 +0.49% +1.36% +11.3218 +11.2411
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