Asia FX Market weak link of Yen and Dollar

03/10/2023

4 minutes read

2023.03.10 02:19

By Tiffany Smith

Budrigannews.com – The Bank of Japan maintained the same stimulus levels on Friday, which led to a decline in the yen and a halt in the rise of the dollar.

After the BOJ kept policy the same at Governor Haruhiko Kuroda’s final policy meeting before he resigns in April, the yen plunged more than 0.6 percent. It later regained some of those losses and closed at 136.66 dollars, roughly 0.4 percent lower.

Even though most market observers anticipated the decision, many believe that the BOJ’s bond yield curve control (YCC) is over. As a result, some people priced in a small chance of a policy change at Kuroda’s last meeting.

According to OCBC analysts, the dollar’s sharp rebound after the decision “was a reflection of the bets markets were putting up hoping for a parting surprise from outgoing Governor Kuroda.”

“We still expect the BoJ to continue with policy normalization at some point, given the increased pressure on wages and prices,”

The U.S. dollar lost some of its gains from earlier in the week in other areas, but it remained close to multi-month highs against some of its major counterparts.

Against the dollar, the euro was last 0.05% higher at $1.0587, in the wake of having hit a two-month low on Wednesday.

Sterling fell by 0.01% to $1.1926 and by 0.02% to $0.6101, remaining close to the more than three-month low of $0.60855 on Wednesday.

The number of Americans submitting new claims for unemployment benefits had increased by the most in five months last week, according to data from Thursday. As a result, traders unwound some bets that U.S. rates would rise significantly more than anticipated, which halted the sharp rally in the greenback.

Compared to 70% prior to the release of the data, futures pricing now suggests a roughly 52 percent chance that the Fed will raise rates by 50 basis points this month. In the meantime, it is anticipated that rates in the United States will reach a peak just below 5.5 percent by July.

After Fed Chair Jerome Powell delivered his semi-annual testimony before the Senate Banking Committee in a more hawkish tone than the markets had anticipated, earlier in the week, the greenback experienced a surge.

The was little changed at 105.26 against a basket of currencies, but it was still on track for a weekly gain of roughly 0.7 percent.

The next significant data point that may provide clues regarding the Fed’s subsequent monetary policy actions is the closely watched nonfarm payrolls report, which is due later on Friday.

After soaring by 517,000 in January, nonfarm payrolls are likely to have increased by 205,000 jobs in February, according to a Reuters survey of economists.

Kiwibank chief economist Jarrod Kerr stated, “The payrolls report has surprised us on the high side for, I think, about 10 straight months now, so it’s been a sign of real strength for the U.S. economy.”

“For the Fed, it’s a little bit frustrating. They clearly have tightened a lot in the hope that it will have an effect. However, in recent months, a number of activities indicators have rebounded. As a result, it appears as though the work is not done.”

Asia Forex Market

The Japanese yen fell after the Bank of Japan maintained its ultra-dovish stance, while the majority of Asian currencies fell on Friday as markets turned cautious ahead of key U.S. labor market data due later in the day.

Prior to a change in leadership at the bank, the sank by 0.4%, remaining close to its lowest levels for the year following the and offering no adjustments to its ultra-dovish policy.

The meeting on Friday was Governor Haruhiko Kuroda’s last, and economist Kazuo Ueda is expected to take over next month. Ueda has also indicated that monetary policy will remain accommodative in the near future, despite predictions from analysts that it will change by the end of 2023.

Separate information showed that Japanese facilitated for a second continuous month, coming in accordance with the BOJ’s figure that expansion will ease in the close term. However, the dovish stance of the central bank is likely to keep the yen low in the short term.

As worries about further increases in U.S. interest rates shook markets this week, broader Asian currencies lost ground, with the majority of units facing steep weekly losses. For additional clues about U.S. monetary policy, the February data, which are due later in the day, are the primary focus.

Each of the lost approximately 0.2 percent.

Any indications of job market resilience give the Fed more leeway to raise interest rates. This, in addition to inflation that is higher than anticipated, is likely to push interest rates higher than market expectations, according to a warning from Fed Chair Jerome Powell this week.

However, amid some hopes that the labor market was cooling, higher-than-expected overnight trade saw the dollar retreat against a basket of currencies.

On Friday, the and remained essentially unchanged, hovering just below their highest levels in three months.

After a string of poor economic readings from the country, the was expected to lose 0.9% this week, despite being flat on Friday. Even though China eased most anti-COVID measures earlier this year, data and slower-than-expected growth suggested a possible sluggish economic recovery.

Given China’s significance as a trading partner for the majority of the region, worries about a sluggish recovery also weighed on other Asian currencies.

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