Changes in the Forex market: He Dollar The yen experienced a drop on Monday, while the yen rose to its highest level in more than a year. This change in the currency market came as investors became more confident about the possibility of a rate cut by the Federal Reserve later this week. The dollar fell to a low of 139.58 yen, moving further away from its low of 140.285 recorded in late December. This marks a level not seen since July 2023.
Key meetings of central banks
The Federal Reserve meeting on September 17-18 is anticipated to be a major event this week, along with policy announcements from the Bank of England and the Bank of Japan on Thursday and Friday, respectively. Recent speeches by Fed officials and economic data have led to speculation about the size of the next rate cut, with the market debating whether the Fed will act decisively with a large cut or take a more cautious approach.
Fed rate cut bets
Futures markets are already fully pricing in a quarter-point cut by the Fed on Wednesday, with a 60 percent chance of a more substantial 50 basis point cut. Just last week, the odds of a larger move were about 15 percent. Niels Christensen, chief analyst at Nordea, commented: “The market is focused on the Fed and whether it will opt for a significant 50 basis point cut or a smaller 25 basis point adjustment. This uncertainty is driving weakness in the market.” Dollar “The dollar index was down 0.3 percent at 100.69. Treasury yields have been easing as the Fed meeting approaches, particularly on expectations of a possible half-point rate cut. Benchmark 10-year Treasury yields have fallen 30 basis points over the past two weeks, while two-year yields have fallen to around 3.55 percent, down from 3.94 percent two weeks ago. Chris Weston, head of research at Pepperstone, noted that selling dollars for yen has been a popular trade among investors betting on lower Treasury yields. “With speculators positioning for a decline, aligning with this trend looks advantageous,” he said.
BOJ rate decision focuses on this
Attention is also on the Bank of Japan’s interest rate decision on Friday, where it is expected to keep its short-term benchmark rate at 0.25%, following two rate hikes earlier this year. The narrowing of the interest rate gap between Japan and other major currencies has supported the yen and prompted the unwinding of yen-funded carry trades. Nordea’s Christensen added: “The expectation of higher rates in Japan and lower rates in the US is contributing to a stronger yen against the dollar.” Dollar The British pound rose 0.4 percent to $1.3170, with the euro also up 0.4 percent to $1.1114. Last week, the European Central Bank cut interest rates by 25 basis points, although ECB President Christine Lagarde tempered expectations for further cuts in the near term. The Bank of England is expected to hold its key interest rate at 5 percent on Thursday, after an initial 25 basis point rate cut in August. Meanwhile, Bank of Canada Governor Tiff Macklem hinted at the possibility of accelerating rate cuts, following a series of reductions since June. The U.S. dollar was virtually unchanged against the Canadian dollar at C$1.3579.(With contributions from Reuters)
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