Yen Up on Rate Hike Bets, Sterling Down

11 Mar 2024 , 09:45 AM

On Monday, the yen gained ground against the dollar as indications that the Bank of Japan will remove negative interest rates during its policy meeting the following week diverged with forecasts that the Federal Reserve will lower rates in June.

The dollar index, which compares the value of the dollar to that of the yen and five other strong competitors, remained near the nearly two-month low it hit on Friday as the U.S. labour market appeared to be cooling, supporting the Fed’s decision to loosen policy.

After its greatest week since November 2022, the value of the pound fell precipitously from a multi-month high as investors wagered that the Bank of England would not drop interest rates as quickly as the Federal Reserve or the European Central Bank.

With a 0.17% decrease, the US dollar is now trading at 146.82 yen, close to its five-week low of 146.48 that was hit on Friday.

At 102.68, the dollar index remained unchanged and was not far from Friday’s low of 102.33, which hasn’t been seen since January 15.

As the outcomes of this year’s annual “shunto” wage discussions are expected on Wednesday, an increasing number of BOJ officials are warming to the idea of terminating negative rates at their meeting on March 18–19, sources told Reuters. This is in anticipation of large pay increases from Japan’s largest companies.

The BOJ is reportedly exploring a new quantitative monetary policy framework to replace the existing yield curve regulations, according to reports from the Jiji news agency.

In contrast, traders placed bets at 73% that the Fed will lower interest rates by the end of its June 11–12 meeting, as indicated by the CME Group’s FedWatch Tool. This was due to Friday’s weak jobs report, which supported Fed Chair Jerome Powell’s earlier comments this week that the Fed was “not far” from having the confidence necessary to lower interest rates. The Fed will meet again on March 19–20.

After ending Friday with a more than 1% gain to $1.2811, a level not seen since late July, sterling fell 0.7% to $1.2859. The currency ended a six-session winning streak versus the dollar last week with a 2.35% increase.

The euro barely moved from its Friday high of $1.0980, its highest level since January 12. It was trading at $1.0944. Last Thursday, the ECB kept interest rates at record highs while carefully setting the stage for a reduction later in the year.

Within the cryptocurrency space, bitcoin was down 0.17% at $68,301, staying below Friday’s record high of $70,175 as of this writing.

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