Economy

Dollar eases amid betting on a less hawkish Fed; sterling firm By Stocksak


© Stocksak. FILEPHOTO: This illustration photo was taken September 23, 2022 and shows banknotes of the U.S. Dollar and Japanese yen. REUTERS/Florence Lo/Illustration/File Foto

By Kevin Buckland

TOKYO (Stocksak), Tuesday: The U.S. dollar fell against its peers amid signs that Federal Reserve rate increases are already putting a brake on the world’s largest economy. However, risk sentiment improved with Rishi sunak set to become Britain’s prime Minister.

Sterling edged towards this month’s highs while the euro threatened $0.99 for its first time since Oct. 6, ahead of Thursday’s European Central Bank policy meeting.

After two days of possible intervention by the Bank of Japan (BOJ), the yen held steady at 149 dollars.

The Japanese currency was supported by a retreat in long-term Treasury yields this week. However, the policy background that caused yen weakness will be exposed in the coming days. The BOJ is expected not to lift monetary stimulus Friday while the Fed is likely raise rates by 75 basis points Wednesday of next week.

The, which measures the currency’s performance against six major peers, fell to 111.78 on Friday, bringing it close to Friday’s low of 111.68. This is the lowest level since Oct. 6.

The greenback softened after S&P flash PMI data overnight showed U.S. business activity contracting for a fourth straight month in October, the latest evidence of an economy slowing in the face of high inflation and rising interest rates.

Stocksak polled economists to determine their expectations for rate increases. They expect them to slow to 50 basis point in December, matching bets placed in the money markets.

“Structurally there is still a lot of love about the U.S. Dollar, but we’re currently in a mean-reversion sideways, choppy marketplace at the moment,” said Chris Weston from Pepperstone in Melbourne. Weston believes the dollar index could fall as low as 110 before it re-enters its upward trend to potentially test 115.

“I think the dollar is still the most beautiful currency in G-10.”

After reaching multi-year highs at 4.338% at last week’s end, yields on U.S. fell to 4.217% in Tokyo.

The dollar fell to 149.00yen from its 32-year high Friday of 151.94. This seemed to have triggered subsequent bouts of BOJ intervention. The dollar dropped as low at 144.55 on Friday, and as low at 145.28 Monday.

The Ministry of Finance declined to comment on whether intervention had been ordered, unlike the September intervention by Japanese authorities.

“As an overall rule, policymakers have their greatest influence on the market when it is transparent about their actions, objectives, and so it is odd that they refuse to confirm their intervention,” Joseph Capurso (OTC:), a currency strategist at Commonwealth Bank of Australia (OTC) wrote in a client note.

“The refusal of the intervention may be a sign that traders are not sure what to do and want to continue to bear down on the market. No matter what the tactics, USD/JPY should recover within a few more weeks after BOJ intervention ends.”

Sterling rose 0.2% to $1.13105, aiming for the high this month of 1.1493 from Oct. 5.

The euro was 0.1% more expensive at $0.98875.

To try to rein in the red-hot inflation, the ECB will likely raise rates by 75 basis point on Thursday.

The offshore fell to an unprecedented 7.3650 dollars due to weakness following the election of the leadership team by the twice-a decade Communist Party Congress. This was in response to fears that growth would be sacrificed for ideology-driven policy.

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