© Reuters. A financial institution worker counts U.S. greenback notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023. REUTERS/Athit Perawongmetha/File Photo
By Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The yen rallied in opposition to the greenback for a fourth straight session on Tuesday as buyers positioned for the likelihood that the Bank of Japan will tighten financial coverage subsequent 12 months whereas the U.S. Federal Reserve loosens.
Also weighing on the greenback and boosting the yen was a rally in China’s yuan, which rose to an nearly four-month excessive.
The greenback hit its lowest degree since mid-September at 147.16 yen and was final down 0.53% at 147.6.
More broadly, the , a gauge of the dollar in opposition to six different currencies, fell to its lowest since late August at 103.17 and was final 0.13% weaker at 103.32.
“There has been a lot of excitement, momentum is building, about the ability of the Bank of Japan to exit its ultra-loose monetary policy… possibly next year, ending negative interest rates,” mentioned Jane Foley, head of FX technique at Rabobank.
Foley mentioned a pointy drop within the greenback was additionally encouraging buyers to unwind a few of their bets in opposition to the yen. “The dollar is weaker, and this I think is just the catalyst for the market making bets on how far dollar-yen can really move,” she mentioned.
China’s yuan hit an nearly four-month excessive of seven.13 per greenback and was final at 7.138.
The People’s Bank of China set the midpoint of the yuan’s buying and selling band at its strongest since Aug. 7.
“We think the sizable rally in the is the primary driver of the stronger yen this week as it is lifting (Asian) FX as a whole,” mentioned Simon Harvey, head of FX evaluation at Monex Europe.
The euro rose to its highest since mid-August at $1.0966 on Tuesday and was final barely increased at $1.0944.
Sterling was up 0.26% at $1.2538, after hitting a two-month excessive of $1.2554. Bank of England Governor Andrew Bailey on Monday mentioned it was “far too early to be thinking about rate cuts” in Britain.
U.S. Treasury yields have tumbled as buyers have wagered that the Federal Reserve will lower rates of interest subsequent 12 months, after a slowdown in U.S. inflation in October.
That has dragged the greenback index down from an nearly one-year excessive at first of October, when U.S. financial information was constantly beating expectations.
The was on observe to fall for a fourth session operating on Tuesday to 4.39%, after dipping on Monday within the wake of a strong public sale of 20-year bonds. It hit a 16-year excessive above 5% in October.
Elisabet Kopelman, U.S. economist at lender SEB, mentioned: “Strong risk appetite and speculation about future interest rate cuts are not a good environment for the dollar.”
Minutes from the Fed’s final assembly are due at 1900 GMT and headline the day forward, together with a speech from European Central Bank President Christine Lagarde.
Some analysts warning that the greenback’s downward momentum could not have an excessive amount of additional to run. “There is a risk that we are going to get push-back about the pace of Fed easing,” mentioned Foley.
