Ray V
SINGAPORE (Reuters) – The yen hit a one-month high against the dollar on Thursday amid growing speculation that the Bank of Japan could end negative interest rates this month, while bets that a U.S. rate cut could come by mid-year, put pressure on the US dollar. .
The Japanese currency rose more than 0.5% to a high of 148.40 to the dollar and advanced against the euro and pound sterling.
The euro was last down 0.53% at 161.99 yen and the British pound was down 0.43% at 189.23 yen.
Bank of Japan board member Junko Nakagawa said on Thursday that Japan’s economy is on track to sustainably achieve the central bank’s 2% inflation target.
Her comments came a day after Jiji news agency reported that at least one of the central bank’s nine board members was likely to say ending negative interest rates would be prudent at a policy meeting this month.
“The potential for (a) March reversal is growing,” said Hirofumi Suzuki, chief currency strategist at SMBC.
“Nakagawa’s comments do not refute this view. As a result, the yen is strengthening, continuing yesterday’s trend. The yen looks strong in the short term.”
The yen has weakened for much of the past two years due to sharp differences in interest rates. Major central banks aggressively raised interest rates to curb inflation, while the Bank of Japan remained the lone exception with its ultra-loose monetary policy.
The BOJ’s move away from negative interest rates comes at a time when bets on rate cuts elsewhere, especially from the Federal Reserve, will continue to rise, providing much-needed support to Japan’s battered currency.
In the broader market, the US dollar was in trouble as traders focused on the idea that US interest rates are likely to fall this year even after some inflation surprises.
Fed Chairman Jerome Powell said Wednesday that rate cuts “will likely be appropriate” later this year “if the overall economy performs as expected” and once officials have more confidence in a sustained slowdown in inflation.
These remarks, coupled with data released on the same day indicating improving labor market conditions, led to a fall in US Treasury yields, which in turn led to a significant decline in the dollar. [US/]
The euro and pound sterling held close to monthly highs hit in the previous session and were last seen at $1.0900 and $1.27395 respectively.
Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC), said Powell’s comments were less hawkish than some had expected.
“Markets were likely relieved that Powell did not change his assessment of inflation risk even after the January CPI data came out,” she said.
According to CME’s FedWatch tool, futures prices currently indicate about a 70% chance that the Fed could begin cutting rates by its June policy meeting, with rate cuts planned for about 87 basis points this year.
All this led to the US dollar remaining near a one-month low against a basket of currencies. The pair fell 0.07% to 103.26.
Elsewhere, the Australian dollar rose to a two-week high of $0.65885, while the New Zealand dollar similarly hit a one-week high of $0.6149.
Data on Thursday showed Australia’s trade surplus widened in January as gains in agricultural and gold exports outweighed gains in car imports.
The yuan was little changed at 7.1985 per dollar domestically, brushing off stronger-than-expected growth in China’s exports and imports in the January-February period.
Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management, said the muted market reaction was likely due to investors awaiting more policy details from China’s annual parliament session.
“Additionally, economic data during the Lunar New Year period is difficult to analyze given the disruption in activity.”
Across the crypto universe, Bitcoin retreated from the all-time high it hit earlier in the week, although its 0.5% loss on the day paled in comparison to its 55% rally for the year.
The world’s most popular cryptocurrency last traded at $66,155, while ether fell nearly 2% to $3,777.20 after hitting a more than two-year high in the previous session.