Dollar set for a weekly fall while the yen sees its best week in four months

17 Nov 2023 , 09:26 AM

With expectations of a contracting U.S.-Japan interest rate disparity and betting that the Federal Reserve is done hiking rates, the yen was heading for its best week against the dollar in four months on Friday, with the greenback expected to lose ground this week.

The market’s assumptions that the Fed has completed its aggressive cycle of monetary tightening have been reinforced by a plethora of weaker-than-expected U.S. economic data reported this week, primarily due to a slowdown in inflation. The focus now is on when the first rate reduction could occur.

With a 35% likelihood that the U.S. central bank might start loosening monetary policy as early as next March, market pricing indicates just a 0.3% chance of another rate hike in December, down from over 15% a week ago, according to the CME FedWatch tool.

As a result, U.S. Treasury yields have decreased in tandem with the dollar’s slide. The dollar was expected to lose roughly 0.6% against the yen this week, marking its worst weekly performance since July.

The euro and pound were also targeting weekly gains of over 1.5% each against the US dollar, while the US dollar index was expected to decline by 1.3%.

In October, U.S. retail sales declined for the first time in seven months, according to separate statistics released this week. Meanwhile, indications of a cooling labour market in the country are growing, as the number of new claims for unemployment benefits reached a three-month high this week.

At its most recent value of 150.72 against the US dollar, the Japanese yen is still below the 150 mark and not far from its one-year low of 151.92 on Monday.

The enormous difference between Japan’s ultra-low rates and those in the US keeps the yen under pressure, especially in the face of a potential peak in US interest rates and speculation among insiders that the Bank of Japan (BOJ) is preparing the markets for the end of negative interest rates.

Other currencies that benefited from the decline in the US dollar included the Australian and New Zealand dollars, which were targeting weekly gains of 1.7% and 1.3%, respectively.

The Australian dollar had minimal response to the positive Australian jobs data that was announced in the previous session, and it was last seen down 0.08% at $0.6466.

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