SHANGHAI/SINGAPORE, Oct 27 (Reuters) – The Japanese yen eased against the US dollar on Tuesday, underpinned by a risk-on mood and a weaker euro ahead of key central bank meetings this week that will influence the global rates outlook.
The yen was 0.1% weaker at 157.66 per dollar, inching further away from the one-month high it touched last week, when its safe-haven appeal was in focus. The yen lost ground on Monday too, as traders eyed the Bank of Japan policy decision later this week.
The BOJ is set to keep interest rates steady at 1.25% in a two-day meeting concluding on Friday, but signal its readiness to continue raising borrowing costs on mounting price pressures.
A key gauge of Japan’s service-sector inflation rose 3.7% in September from a year earlier, data showed on Tuesday, a sign of increasing price pressures that will likely keep the central bank on track for further interest rate hikes.
The key thing to watch is whether the central bank is comfortable declaring that inflation has met its target, said Moh Siong Sim, a currency strategist at OCBC.
“If they declare that in this meeting … it makes it a stronger signal that they will get on with the normalization,” though still in a gradual manner, he said.
The yen was among the best-performing major currencies last week, as AI jitters in the equity market spurred a rush into the currency.
While it is too early to call an AI crash a market theme, it could become a bigger worry next year, Sim said. The yen’s value as a hedge is likely to rise over that period, adding to its appeal as an appreciation play — a move underpinned partly by the BOJ tightening and the potential reallocation of domestic assets by Japanese investors, he said.
Markets price slightly better-than-even odds of a December BOJ hike, so there is plenty of room for a rebound in the yen should Governor Ueda strike a hawkish note, said Ebury analysts in a note.
“We still favour another hike at the last meeting of the year, though whether the BOJ will be prepared to commit to that just yet is unclear.”
Apart from the BOJ, four other major central banks will announce policy decisions this week. The BOJ’s meeting follows that of the Fed, which is seen skipping a hike at its two-day meeting concluding on Wednesday.
The European Central Bank is also set to keep rates unchanged at 2.5% on Thursday. New Zealand’s and Canada’s central banks are expected to raise rates this week.
DOLLAR FIRMS ON RISK-APPETITE REVIVAL
The dollar index held steady near a two-week high at 102.11 on Tuesday as a tech-led rebound on Wall Street revived appetite for risk, while investors await megacap earnings and the US midterm elections.
Risk appetite returned overnight after Anthropic’s IPO filing and Meta’s $95 billion equity plan rekindled the artificial intelligence trade. [.N]
The dollar was also underpinned by a weaker euro, which fell to a near two-week low against the greenback as worries over France’s fiscal health piled pressure on the single currency. The euro last fetched $1.1171, down about 1.4% this month.
A selloff in French government bonds that drove the country’s debt-risk premium to its highest since the 2011 sovereign debt crisis has rekindled concerns about financial stress across the euro zone.
The Brazilian real stabilised following a sharp fall against the US dollar after President Luiz Inacio Lula da Silva won a historic fourth term on Sunday against Senator Flavio Bolsonaro, the eldest son of former President Jair Bolsonaro.
The kiwi dollar rose 0.4% to 0.5702 against the greenback as markets widely expected the country’s central bank to lift its official cash rate a quarter point to 3.0% on Wednesday.
(Reporting by Li Gu in Shanghai and Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman and Lincoln Feast.)
Comments