Yen Rises as Japanese Bond Yields Climb, Dollar Falls as Euro and Pound Advance
The yen strengthened on Wednesday as Japanese bond yields surged, fueling hopes that ultra-loose monetary policy would soon come to an end. Meanwhile, the dollar weakened as the euro and pound made gains.
The dollar was down 0.66 percent against the yen, trading at 147.39. The yen closely followed Japanese government bond yields, which reached six-week highs after Bank of Japan chief Kazuo Ueda expressed optimism about achieving the central bank’s inflation target.
Positive Japanese export data further bolstered the yen, along with a decline in U.S. bond yields as investors attempted to assess the likely direction of Federal Reserve interest rates.
Ray Attrill, head of FX research at National Australia Bank, commented, “Ueda’s comments have given the market more confidence that April is definitely a live date for a potential exit from the current policy.”
The euro saw a 0.4 percent increase, reaching $1.0896 after a 0.27 percent decline on Tuesday. The currency received a slight boost from purchasing managers’ index surveys, which indicated a slight easing of the eurozone economy’s downturn in January, although it remained sluggish. The euro also slipped to its lowest level against the pound since early September at 85.4 pence.
In other news, China’s central bank announced a 50 basis point reduction in the amount of cash banks must hold as reserves, effective February 5. This move aims to stimulate lending and boost the economy. As a result, the onshore yuan strengthened, reaching an almost two-week high of 7.1601 against the dollar.
Looking ahead, investors are focused on the European Central Bank’s upcoming interest rate decision on Thursday. President Christine Lagarde may provide insights into when eurozone interest rates could start falling, according to Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
“The dollar index currently is almost unchanged since last Wednesday,” Tan added. “In many ways, it’s following U.S. rates (bond yields) which have also been fluctuating… FX and rates markets are waiting for the next catalyst.”
Sterling also experienced gains, rising 0.55 percent to $1.2755. The currency received a boost from survey data indicating continued growth in British services firms in January.
The U.S. rate futures market currently prices in a roughly 52 percent chance of a rate cut in March, up from the previous day but down from the 80 percent probability two weeks ago, according to LSEG’s rate probability app.
Overall, the yen’s rise and the dollar’s decline reflect the shifting dynamics in global currency markets, as investors closely monitor central bank policies and economic indicators.
