The Yen Holds Steady as BOJ Meeting Begins
LONDON—The yen stood firm on Monday as the Bank of Japan (BOJ) kicked off a two-day meeting that could be crucial in determining the timing of the end of the central bank’s ultra-loose stance on interest rates.
Recent Risk Appetite Boosts Australian and New Zealand Dollars
The recent burst of risk appetite has given the Australian and New Zealand dollars in particular a leg up, with both nudging towards five-month highs on Monday.
US Dollar Extends Fall After Fed’s Signal on Interest Rate Cuts
The U.S. dollar extended last week’s fall following the Federal Reserve’s signal over the possibility of interest rate cuts next year.
Volatility in the Yen as Markets Await BOJ Decision
The yen held steady at 142.41 per dollar, after gaining nearly 2 percent last week. The Japanese currency has had a volatile few weeks, as markets struggle to get a grip on how soon the BOJ could phase out its negative interest rate policy.
Anticipation Builds Around BOJ Meeting
In any case, since hitting a multi-decade low against the dollar near 152 in November, the yen has gained around 6 percent in value as traders have grown increasingly convinced the BOJ’s low-rates drag on the currency will not last much longer. CMC markets strategist Michael Hewson said, “There is now less incentive for them to think about altering their current policy settings, although they might hint at starting to execute some form of shift early next year.”
Risk On: Australian and New Zealand Dollars Rise
Elsewhere, the Australian and New Zealand dollars, which can often act as barometers for investor risk appetite in the currency market, traded near their highest in five months. The Aussie rose 0.35 percent to $0.6725, not far from last week’s peak of $0.6728, while the kiwi jumped 0.5 percent to $0.6241.
Fed’s Possible Rate Cuts Boost Market Sentiment
The prospect of Fed lowering rates early next year kept the mood buoyant across markets. Futures show a roughly 75 percent chance that the first cut could come as early as March, according to the CME FedWatch tool.
Dollar Faces First Yearly Loss Since 2020
The dollar is now facing its first yearly loss against a basket of major currencies since 2020, as the boost from the Fed’s steep U.S. rate hikes and “higher for longer” messaging has now faded. The dollar index was last down 0.16 percent at 102.44, having lost 1.3 percent last week.
ECB and BoE Keep Interest Rates Steady
The European Central Bank (ECB) and Bank of England (BoE) likewise kept interest rates steady at their respective policy meetings last week, although unlike the Fed, both pushed back against expectations of imminent rate cuts.
Eurozone’s Weak Economic Performance Weighs on Euro
The euro, however, remains hobbled by a gloomy outlook for growth in the eurozone, with data last week showing a downturn in the bloc’s business activity deepened more than expected in December, indicating the economy is likely in recession.
By Amanda Cooper
