THE Japanese yen grazed six-week highs before retreating against the US dollar on Thursday (Jul 18), keeping traders alert to any signs of official buying.
The euro held steady, as did eurozone government bond yields, after the European Central Bank (ECB) left interest rates unchanged and did not signal a cut in September was imminent.
The euro was last at US$1.09325, having traded around US$1.09278 earlier. Against the pound, the euro was up 0.12 per cent on the day at 84.20 pence, compared with 84.175 pence ahead of the ECB decision.
The pound, meanwhile, traded around one-year highs, dipping below US$1.30 after British data showed a slower moderation in wage growth than expected in May, which kept the chances of an August rate cut well under 50 per cent.
Sterling was last flat at US$1.29895, but is on course for a 2.1 per cent rise so far this year, making it the best-performing major currency against the dollar, largely down to the rate outlook.
“Markets think an August rate cut by the BOE (Bank of England) is less likely, while the chances of a Fed cut in September have risen,” Andrew Goodwin, chief UK economist at Oxford Economics, said.
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“I suspect the recent appreciation will prove to be short-term noise, and that we’ll soon settle into a pattern where both the BOE and Fed are easing at a similar pace. So this is likely to stabilise sterling around its current level,” he said.
The yen strengthened by as much as 0.53 per cent overnight, as the dollar extended a protracted slide that has put it on track for its biggest two-week decline versus the Japanese currency this year, down 2.8 per cent in that time.
The dollar was last up 0.15 per cent at 156.445, still almost five yen below where it was just over a week ago.
Bank of Japan money market data suggested authorities may have bought nearly six trillion yen (S$51.4 billion) last week, and traders said this week’s moves bore the hallmarks of further intervention, or at least of markets easily spooked by that prospect.
“Many traders and Japanese investors, after intervention, were looking to reload on their trades,” said National Australia Bank strategist Rodrigo Catril in Sydney.
“The big move (on Wednesday) would have caught them offside and triggered a little bit of a reassessment, if not an unwinding, of those positions.”
Net yen shorts stood near a 17-year high last week.
Interest rate markets are pricing more than 60 basis points (bps) of US interest rate cuts this year and some 20 bps of hikes in Japan, narrowing the wide rates gap that had encouraged investors taking on large short positions in the yen.
Catril and other analysts also pointed to remarks from US presidential candidate Donald Trump – who described the dollar’s strength and the weakness of the yen and yuan as a big problem in a Bloomberg Businessweek interview – as rattling markets.
So far this year, the yen is the worst-performing G10 currency against the dollar, losing more than 9 per cent, while the yuan is down about 2.2 per cent.
The Australian dollar caught a small boost from some mixed jobs data and traded up 0.1 per cent at US$0.6732, while the New Zealand dollar was down 0.15 per cent at US$0.6073. REUTERS
