Written by Yen “rate check” was conducted by the New York Fed
The dollar continued to fall against its major counterparts on Friday, remaining on the back foot today, and losing the most ground against the Japanese yen.
On Friday, just hours after the BoJ decision failed to revive the yen bulls, a sharp spike up in the Japanese currency raised speculation about action by Japanese authorities. Nonetheless, later in the day, reports hit the wires that another check was conducted by the New York Fed.
The NY Fed contacted dealers to ask what price they would get if they were to enter the market now, a move that is usually a precursor of actual intervention. This raised speculation of a joint US-Japan action to stabilize the yen, which would be the first since March 2011, right after the Tohoku earthquake and tsunami. That said, back then, the yen surged sharply and thus, the US and Japan sold the yen and bought dollars to stabilize the exchange rate.
Speculation of US-Japan intervention fuels yen’s engines
Japan’s Finance Minister Katayama refrained from commenting on Friday’s moves and reports, but top currency diplomat Mimura noted that the government is in close coordination with the US when it comes to the dollar/yen exchange rate, corroborating fears about a potential action soon. Prime Minister Takaichi said on Sunday that they would take “necessary steps” against speculative FX moves.
Dollar/yen tumbled around 545 pips from Friday’s peak of around 159.25, as traders became more convinced that a bold intervention episode may be approaching. However, with such a massive covering of short yen positions, actual action by Japanese and US authorities may have been avoided, at least for now.
Dollar falls ahead of Fed decision, Fed chief announcement
The US dollar continued being sold against most of its major peers, perhaps due to the wounds inflicted through the dollar/yen selling.
This week, dollar traders are likely to keep their gaze locked on the Fed. On Thursday, the Committee will decide on monetary policy and while policymakers are widely anticipated to refrain from acting, market participants may closely monitor the statement and Powell’s press conference for clues as to when it may be appropriate for interest rates to be reduced further.
According to Fed funds futures, investors are still anticipating nearly two quarter-point reductions by the end of the year, contrasting the Fed’s latest dot plot that pointed to only one.
Traders will also be on the look out for US President Trump’s announcement of his choice for the new Fed Chief. Should it be confirmed that a more dovish policymaker will take over, the dollar may extend its slide.
Stocks mixed as key earnings loom; Gold surges above $5,000
Wall Street’s main indices traded mixed on Friday. The Nasdaq closed in the green, the S&P 500 virtually unchanged and the Dow Jones in the red. It seems that investors are holding a relatively cautious stance, not only ahead of the Fed decision, but also ahead of key earnings releases.
This week, nearly one-fifth of the companies on the S&P 500 are scheduled to announce results, including tech giants Microsoft, Meta, Apple and Tesla. Until now, 81% of the 59 companies that have reported results have beaten estimates pushing the year-on-year rate of aggregate earnings growth up to 9.1%.
Thus, upbeat numbers from the aforementioned firms, combined with hints that the Fed may proceed with more than one rate cuts this year, could encourage investors to add to their risk exposures and thereby push stock indices higher.
Gold extended its rally, continuing to defy gravity and hitting a fresh record high above the round figure of $5,000, at around $5,110. Besides the slide in the US dollar, the precious metal may have been driven once again by geopolitical shenanigans after US President Trump ramped up pressure against Iran through more oil-related sanctions. Oil prices rebounded on speculation of supply shortages.
by XM.com
