The dollar hits a new 9 1/2-month high against the yen, Japan’s fiscal policy and US data are in focus
The dollar hit a new 9 1/2-month high against the yen before weakening and weakening against the euro on Tuesday, as investors worried about Japan’s fiscal stance and awaited U.S. data for signals about the Federal Reserve’s next move.
Global shares slumped with selling heaviest in technology-driven markets, but the reaction in forex markets has been relatively subdued to date.
The DXY dollar index, which measures the U.S. currency against its peers, was last flat at 99.52, after snapping a four-day losing streak on Monday.
Investors await US economic data following the longest government shutdown ever, with the September jobs report expected to be released on Thursday.
“This data is backward-looking but remains very relevant,” said Paul Mackel, global head of forex research at HSBC.
“This represents a period when the FOMC continued its easing cycle and follows when Chairman Powell sounded dovish in Jackson Hole on US labor market conditions,” he argued.
Fed Governor Christopher Waller continued to make the case for further rate cuts amid broad policy wrangling at the US central bank, while Fed Vice Chairman Philip Jefferson said the US central bank needed to “take it slow”.
Money markets in recent days have priced the odds of a 25bp rate cut next month at around 50%, according to the CME Group FedWatch tool. Odds on Monday were 49% from 60% last week.
The yen rebounded and was last at 155.05, up 0.15% on the day. USDJPY Hit early session 155.37, lowest level since February 4.
Although Bank of Japan Governor Kazuo Ueda has hinted at the possibility of raising interest rates as soon as next month, Prime Minister Sanae Takaichi has voiced his displeasure at the idea and urged the BoJ to cooperate with the government’s efforts to improve the economy.
Barclays advised keeping buying the US dollar against the yen, saying that Takaichi’s Abenomics style policies would likely continue to put pressure on the Japanese currency.
They raised their dollar/yen target to 158.8, arguing that additional fiscal spending would swell Japan’s debt and increase the premium investors demand for holding the currency.
Analysts also flagged a growing risk of foreign exchange intervention, which could slow the dollar’s rise, although they noted that recent verbal warnings from authorities did not indicate imminent action.
Japanese Finance Minister Satsuki Katayama on Tuesday expressed concern over recent foreign exchange movements.
Japan must collect about 23 trillion yen in stimulus, Goushi Kataoka, a private sector member of a key government panel, told Reuters on Monday. The amount would far exceed the 17 trillion yen package previously reported by the Nikkei newspaper, sparking fresh concerns in the market over the supply of new government debt that the bond market will have to digest.
Japan’s government bond yield curve steepened amid concerns about the size of Takaichi’s stimulus package, with 20-year bond yields hitting a 26-year high.
The euro was up 0.05% at $1.1596.
The Australian dollar AUDUSD was roughly unchanged at $0.6494 after minutes of the Reserve Bank of Australia’s policy meeting on November 3-4 showed the central bank considered the current interest rate of 3.6% slightly restrictive, but said there was a possibility this was no longer the case, citing a surge in housing loans to investors.
Source: Reuters
