Dollar Hikes Toward Highs as Yen Flexes Against BOJ Jabs

24 Jan 2024 , 09:01 AM

In response to expectations among investors that the Federal Reserve would take its time lowering interest rates given the strength of the U.S. economy, the dollar held steady against its main counterparts on Wednesday, trading close to a six-week high.

However, after hawkish remarks from the Bank of Japan on Tuesday, expectations for a stimulus departure as soon as March increased, and the Japanese yen continued to rise.

The U.S. dollar index, which compares the dollar to six competitors, including the euro and yen, was unchanged at 103.48 during the previous trading session. It had reached its highest level since December 13 at 103.82.

According to LSEG’s rate probability programme, the U.S. rate futures market priced in an approximately 47% possibility of a March rate decrease on Tuesday. This is up from late Monday, but down from as much as 80% around two weeks ago.

Futures traders are speculating on five quarter-point rate reductions for 2024. They had six expected two weeks ago.

President of the San Francisco Fed Mary Daly stated on Friday that she thinks monetary policy is in a ‘good place’ and that it is premature to expect rate reduction are imminent, in her final remarks before Fed policymakers went into a blackout period ahead of their policy decision on January 31.

That week, traders saw remarks made by Fed Governor Christopher Waller about policymakers moving ‘carefully and slowly’ as a rebuke of pricing for an expeditious rate decline.

Policy is decided by the ECB on Thursday. Although no change in interest rates is anticipated, investors will be observing the statement’s tone as well as central bank chief Christine Lagarde’s news conference for indications regarding the direction of interest rates.

After falling as low as $1.0822 on Tuesday for the first time since December 13, the euro was unchanged at $1.08565.

After falling 0.2% overnight, sterling gained some ground and was now trading at $1.2694. On February 1st, the Bank of England releases its policy decision.

After a tumultuous session the day before, the BOJ decided to maintain stimulus levels, as was to be expected, but central bank chief Kazuo Ueda made hints that negative rates would stop in April or even March. As a result, the Japanese currency gained some ground on Wednesday.

The dollar fluctuated on Tuesday, closing at 146.99 and rising as high as 148.70 before losing 0.17% to 148.085 yen.

It is anticipated that the Bank of Canada will maintain its key overnight rate at a 22-year high of 5% during its policy meeting on Wednesday.

The US dollar fell 0.15% on Tuesday and was unchanged at C$1.3462 on Wednesday.

As Bloomberg reported on Tuesday, China’s policymakers are looking to mobilise roughly 2 trillion yuan ($278.86 billion) as part of a stabilisation fund to support the collapsing stock market, the value of the Chinese yuan remained stable in offshore trading at 7.1660 per dollar, staying close to a nearly two-week high of 7.1635.

In other news, bitcoin, a cryptocurrency, has stabilised at slightly over $40,000 after falling below $38,505 on Tuesday for the first time since December 1.

In expectation that the United States would approve the nation’s first spot bitcoin exchange traded fund (ETF), traders have unwound bullish bets that they had built up.

A day following the acceptance, on January 11, Bitcoin had risen to a record high of $49,048. However, the next day, traders dumped the token in an obvious sell-the-fact manoeuvre, and the price of the token fell as low as $41,509 in the market.

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