April 25, 2024

Dollar Declines on Hawkish Fed Expectations; Sterling Rises

The Euro neared $0.99 for the first time since October 6, while the Sterling came close to this month’s highs. This occurred before Thursday’s European Central Bank’s (ECB) policy meeting. 

Today, the Yen is still trading at above 149 to the Dollar. This is despite apparent intervention on Friday and Monday by the BOJ.

Despite The Dollar’s Decline, It Is Believed to Be Fundamentally Sound

On Friday, the BOJ is expected to keep up the monetary stimulus. The Fed is expected to raise interest rates by 75 basis points on Wednesday of the following week. 

All of these serve to emphasize Yen’s worsening policy environment.

The Dollar index, which compares the greenback to six other major currencies, dropped to 111.72. It decreased to the 111.68 low sets on Friday, the weakest since October 6. 

Overnight S&P flash PMI data indicated a drop-in U.S. business activity at 111.96. According to reports, the fall continued in October for a fourth straight month. 

It is believed that the collapse is the most recent evidence of the economy’s decline. High inflation and increasing interest rates are to blame for this.

According to experts at Reuters, the rate increase will drop to 50 basis points in December. This matches what the money market anticipates.

The difficulties have been discussed by Chris Weston, research director at Pepperstone in Melbourne. He said that while the market is mean-reverting, sideways, and turbulent, the U.S. Dollar is still fundamentally sound. 

The Dollar, according to him, is the most desirable G-10 currency to have.

The Dollar index, according to Weston’s forecast, would drop to 110 before rebounding to 115. This will be the highest level since May 2002. 

10-year Treasury rates decreased to 4.2047% in Tokyo last week from multi-year highs of 4.338% the previous week.

The Dollar dropped from Friday’s 32-year high of 151.94 Yen, which seemed to call for BOJ intervention, to 148.915 Yen. The Dollar fell to 144.55 on Friday and 145.28 on Monday.

Sterling Is Gaining Ground

Regarding whether it had recently authorized involvement, the Ministry of Finance declined to comment. However, it did acknowledge the September action, marking Japanese officials’ first Yen purchase since 1998.

Currency expert Joseph Capurso of Commonwealth Bank of Australia (OTC: CMWAY) provided some information in a client note. He asserted that when policymakers are open and transparent about their intentions, they have the most significant impact on the market. 

It is rare, he said, for them to fail to affirm their participation. He said that the refusal to recognize the intervention might be an effort to confuse the markets and drive down the USD/JPY. 

Despite BOJ intervention, a recovery in USD/JPY is anticipated within a few weeks.

Sterling increased by 0.24% to $1.13105, moving closer to the month’s high of $1.1493 set on October 5. At $0.98875, the Euro has gained 0.16 percent.

The ECB is expected to raise interest rates by 75 basis points on Thursday to cool the soaring inflation.

Ahead of Wednesday’s quarterly consumer pricing data release, the Australian Dollar increased 0.14% to $0.6322. The Reserve Bank of Australia is scheduled to meet next week to discuss rate policy.

The Dollar in New Zealand increased by 0.31% to $0.57095.

The Chinese Yuan keeps losing strength. This came after the leadership team for China was chosen by President Xi Jinping at the twice-decade C.P. Congress.

The onshore Yuan plunged to an almost 15-year low on Tuesday due to the central bank’s lowest mid-point since 2008. As a result, the Yuan offshore reached 7.3650 against the Dollar.

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