FX Rate News

Japan’s yen approached a five-month high on Thursday after a lack of progress in U.S.-Mexico trade talks hurt risk sentiment and drove investors towards safe-haven currencies.

Investors were focused on the euro, which has strengthened recently on the back of dollar weakness caused by rising bets on a U.S. interest rate cut.

The European Central Bank meets on Thursday, with traders looking to see how concerned policymakers are about signs of a downturn in growth.

Recession fears are sweeping across the world and central banks have in recent weeks cut rates in what could signal the start of a global monetary easing cycle.

The Japanese yen has been the main beneficiary from a shift towards assets investors deem safer.

It rose as much as 0.3% to 108.07 yen per dollar, close to its strongest level since Jan. 10, after negotiations in Washington on Wednesday aimed at averting U.S. tariffs on Mexican goods showed little sign of progress.

U.S. President Donald Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States.

The Mexican peso, already saddled with trade concerns, took a hit after credit ratings agency Fitch downgraded its sovereign debt rating on Wednesday by a notch from BBB+ to BBB, just two notches above junk status.

The euro was 0.05% higher at $1.1227 after retreating 0.3% on Wednesday. The single currency has brushed a 1-1/2-month high of $1.1307 this week.

The ECB will try at Thursday’s meeting to give the ailing euro zone a boost and may even set the stage for more action later this year as an escalating global trade war unravels the benefits of years of monetary stimulus. It will also give updated staff growth and inflation forecasts.

“What matters during the ECB meeting today is whether the Council will stick to its view that the economy will recover in the second half of the year,” Antje Praefcke, an analyst at Commerzbank, wrote in a note to clients.

“Draghi would have to sound very concerned about the growth and inflation outlook to cause a reaction in the euro.”

ECB President Mario Draghi is expected to maintain guidance about the possibility of more stimulus.

The dollar index against a basket of six major currencies stooped to a two-month low of 96.749 midweek as benchmark U.S. yields declined sharply this week to 21-month lows on investor risk aversion and heightened prospects of the Federal Reserve cutting interest rates.

The dollar struggled near seven-week lows on Wednesday after U.S. central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.

Federal Reserve Chairman Jerome Powell dropped his standard reference to the Fed being “patient” in approaching any rate decision on Tuesday, saying instead the central bank will respond as “as appropriate” to trade pressure.

The dollar index against a basket of six peers was last flat at 97.077, within reach of a recent low of 96.995 brushed overnight – its lowest since April 18. It has now fallen 1.3% from a more than two-year high of 98.371 touched on May 23.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said major currencies barely reacted to Powell’s comments as investors had already priced in several rate cuts by the Fed on the back of the shifting global growth outlook.

The Fed chairman’s comments came a day after St. Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed “soon.”

Rate cuts by some central banks in recent weeks could potentially signal the start of a global monetary easing cycle to stave off a sharper economic downturn.

“Central banks across the globe are adopting a dovish tone. It’s kind of a preemptive move,” said Yamamoto.

“It doesn’t necessarily mean that the economy is worsening – rather the outlook worsened. It’s mainly related to the trade tensions between the U.S. and China and the U.S. and Mexico.”

Australia’s central bank on Tuesday slashed benchmark cash rates to a record low of 1.25% and signalled willingness to go further if the worsening outlook persists.

Last month, New Zealand’s central bank cut its benchmark interest rate for the first time in two-and-a-half years as it moved to support a cooling economy and counter global uncertainties.

In South Korea, its central bank last week kept policy settings unchanged but adopted a more accommodative tone while India is expected to cut rates at its policy meeting on Thursday.

On Wednesday, the Australian dollar rose 0.15% to $0.7000 despite data showing growth in the Australian economy picked up only modestly in the first quarter while the annual pace was at its slowest in a decade.

The A$1.9 trillion ($1.3 trillion) economy expanded 0.4% in the three months ended March, while annual GDP rose 1.8%, the weakest since the global financial crisis.

The New Zealand dollar was in the spotlight after a senior official of the Reserve Bank of New Zealand was quoted as saying the central bank’s central view was that interest rates would remain broadly around current levels for the foreseeable future.

The kiwi was last up 0.3% at $0.6629, having brushed a one-month low earlier in the session.

Against the yen, the dollar edged down 0.02% to 108.125 yen per dollar, within striking distance of a near five-month high of 107.845 – its highest since Jan. 10 – hit during the previous session.

Minori Uchida, chief currency analyst at MUFG Bank, said the yen was likely to be supported for the time being as a U.S. rate cut would likely signal further weakness in the global economy.

“The dollar will lose some of its strength if interest rates will actually be cut in the United States,” said Uchida.

“Japanese interest rates are already at such a low level that they are unlikely to be cut any further. Rate differentials are likely to get smaller if other countries conduct monetary easing,” he said.

The euro was up 0.1% at $1.1260, extending its gains to a fourth session.

The yen brushed a more than four-month high against the dollar on Monday and the Swiss franc rose as U.S. President Donald Trump’s hard stance on trade broadened to countries beyond China, stoking investor demand for safe-haven assets.

With trade issues remaining front-and-center, investor appetite for risk has been dampened by fears of a global growth slowdown that has helped stoke demand for government debt and triggered an equity sell-off.

Perceived safe-haven assets were well supported despite a private survey on the Chinese manufacturing sector pointing to a modest expansion in factory activity as export orders bounced from a contraction.

In a recent development, U.S. and Mexican officials were preparing for trade talks after Trump vowed to impose punitive tariffs on all Mexican goods in an intensifying dispute over migration.

“The Mexican news is quite punchy. No one was really expecting it to the same extent they were with China,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone.

“Mexico is a huge trade partner with the U.S.,” he said.

The Swiss franc rallied 0.3% against the dollar to 0.9975 and the yen gained 0.15% to 108.10 yen, its highest since mid-January.

On Friday, the Japanese currency had booked its sharpest daily rise in more than two years, climbing a little over 1.2% during the session.

The yen is considered a safe haven asset in times of geopolitical and financial turmoil as Japan is the world’s biggest creditor nation.

U.S. and Mexican officials were preparing on Sunday for upcoming talks aimed at averting a trade clash after Trump said he would apply 5% tariffs on the country’s goods on June 10 if it does not halt the flow of illegal immigration across the U.S.-Mexico border.

A day earlier, Mexico’s president Andres Manuel Lopez Obrador had hinted his country could tighten migration controls to defuse tensions with Trump, saying he expected “good results” from talks with Washington.

The Mexican peso, hit by Trump’s sudden threat to impose tariffs on Friday, regained some stability, trading at 19.6165 to the dollar, after its 2.5% fall on Friday.

Market participants also kept a focus on the trade dispute between the United States and China, the world’s two largest economies.

A senior Chinese official and trade negotiator said on Sunday Washington cannot use pressure to force a trade deal on China and refused to be drawn on whether the leaders of the two countries would meet at the G20 summit in Japan at the end of the month to bash out an agreement.

“Markets are trying to catch up with negative news in relation to trade relations for the time being,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings.

“They’re seriously starting to react to prolonged trade tensions in a risk-off way.”

The dollar dipped after benchmark 10-year U.S. Treasury yields hit as low as 2.121% on Monday, their lowest since September 2017.

Against a basket of six major currencies, the dollar index slipped 0.15% to 97.606, though it is still up 1.5% for the year.

The euro gained 0.15% to $1.1185, rising for a second session after tacking on 0.35% on Friday — its first gain in five sessions.

The Australian dollar was up 0.3% to hit a near three-week high of $0.6958 on the back of the positive Chinese factory activity reading.

The Aussie’s gain came despite a New York Times report, citing sources, that Trump had been urged to impose tariffs on Australian imports in response to an increase in exports of aluminium to the United States over the last year.

The Mexican peso sank to three-month lows against the dollar on Friday after Washington unexpectedly said it will slap tariffs on all goods coming from its southern neighbor.

The safe-haven yen advanced as the Trump administration’s move to escalate its trade war with other countries shook already fragile investor sentiment in global financial markets.

“The news on Mexican tariffs came just as the United States is imposing tariffs on China, and the timing is stirring up the markets, ” said Daisuke Karakama, chief market economist at Mizuho Bank.

“Headlines related to trade issues come in short, unpredictable bursts. Currency market reaction is therefore quite intense, but also tends to be short-lived.”

The Mexican peso was down 1.8% at 19.4812 per dollar after President Donald Trump said on Thursday the United States will impose a 5% tariff on all goods coming from Mexico from June 10 until illegal immigration is stopped.

At one point, the peso weakened to 19.5950 per dollar, its lowest since March 8.

“Imposing these tariffs is in principle, not allowed under the free trade agreement currently in place between Mexico and the United States or under WTO general frameworks,” wrote Tania Escobedo, strategist at RBC Capital Markets.

“It is likely, however, that Trump will claim the measure is a matter of national security, referring to the International Emergency Economic Powers Act (IEEPA).”

The yen was up 0.35% at 109.240 per dollar and also made gains against the euro and Australian dollar.

The dollar index against a basket of six major currencies was flat at 98.106 after inching down the previous day, when it snapped two straight sessions of gains amid a continuing decline in U.S. yields.

The index was still headed for a 0.5% gain this week, supported by weakness in peers such as the euro and sterling, and the U.S. currency’s own status as a safe-haven in times of market and economic troubles.

“The dollar’s recent gains are part of the flight-to-quality into the United States, notably the strong investor demand for Treasuries which has driven their yields lower,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

The 10-year U.S. Treasury note yield has declined steadily this week and touched 2.171% on Friday, its lowest since September 2017.

The euro was steady at $1.1133. The single currency was down 0.62% this week, weighed by factors including concerns over Italy’s rising debt and the prospect of Trump opening up a European front in his trade war.

The pound was effectively flat at $1.2612. Sterling has lost nearly 0.8% this week, as the imminent departure of Theresa May as prime minister deepened fears about a chaotic exit for Britain from the European Union.

The Swiss franc, which serves as refuge in times of market turmoil, rose 0.2% to 1.0058 francs per dollar.

The Japanese yen firmed to a two-week high versus the dollar on Wednesday as concerns of a further escalation in the trade conflict between the United States and China prompted investors to rush to perceived safe-haven assets.

A global wave of risk aversion sent sovereign bond yields tumbling across the world. Benchmark U.S. Treasury yields fell to their lowest levels since September 2017 while New Zealand bond yields tumbled to a record low.

The People’s Daily newspaper, owned by China’s ruling Communist Party, said Beijing was ready to use rare earths for leverage in its trade war with the United States. It added in an extremely strongly worded commentary “don’t say we didn’t warn you”.

The yen edged 0.2 percent higher to 109.15 against the dollar, its highest level since May 15 this year and not far away from an early February high of 109.02 yen.

But the dollar’s losses remain broadly confined against the yen as the greenback remained firm against other currencies such as the euro and the pound.

The dollar – bolstered by its status as the world’s reserve currency – was less than half a percent below a two-year high of 98.37 hit last week against a basket of its rivals. It was broadly steady at 97.97.

“Investors currently regard the greenback as the go-to instrument in a time when global growth is threatening to turn lower on the back of a trade dispute and political fragmentation abroad,” said Konstantinos Anthis, head of research at ADSS.

The U.S. Treasury Department said in a report on Tuesday it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices: China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, and Vietnam.

Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch, said the report had a muted impact on risk sentiment, adding that investors are watching how the United States and China will deal with their trade dispute going into the G-20 meeting in Japan next month.

The dollar rose against its major peers on Tuesday as investors awaited new trading catalysts after the European Union parliamentary elections showed a polarization of the 28-member block.

The yen was in a holding pattern as U.S. President Donald Trump, who is visiting Japan, is seen putting pressure on Tokyo to reduce the nation’s large trade surplus with the United States.

Many of the currency pairs hugged recent ranges, as activity thinned out overnight with stock exchanges in the United States and Britain closed for market holidays.

The euro struggled following remarks by two officials from the currency bloc that the European Commission is likely to  start disciplinary steps against Italy on June 5 over the country’s rising debt and structural deficit levels, which break European Union rules.

Against a basket of six peers, the dollar index gained 0.2% to 97.804, trading about 0.6% off a two-year high of 98.371 hit on Thursday. The index is still up 1.7% for the year.

The euro slipped 0.1% to $1.1182 after bouncing from a 1-1/2-week high of $1.1215 overnight following the outcome of European parliamentary elections.

Pro-European parties retained a firm grip on the EU parliament, provisional results from the bloc’s elections showed on Monday, though eurosceptic opponents saw strong gains.

“There is a polarization of the European parliament which is a kind of representation of the overall European political situation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. “That will be broadly negative for the euro.”

Yamamoto said the news of possible disciplinary steps against Italy over its national debt hurt the euro, though the market reaction was limited due to the U.S. and UK holidays.

Against the yen, the greenback dipped 0.1% to 109.46 yen, 0.4% above a three-month low of 109.02 yen touched three weeks ago.

The dollar’s rise against the Japanese currency has been limited as Trumpsought to pressure Japan to take measures to reduce its trade surplus with the world’s largest economy.

Trump said on Monday he expected the two countries to be “announcing some things, probably in August, that will be very good for both countries” on trade.

Japan’s Economy Minister Toshimitsu Motegi said on Tuesday the U.S. President’s comment probably reflected his hope for quick progress in negotiations.

“While it’s positive that there will be time for solving the U.S.-Japan trade issue, that doesn’t mean the problem has been has been resolved,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings. ”(But) it’s providing some relief.”

Ishikawa said it remained hard for investors to take on risk due to the yet-to-be-resolved trade negotiations between the United States and China.

Elsewhere in the foreign exchange market, the Australian dollar edged up to $0.6919, about 0.75% above a four-month low last touched on Thursday last week.

Bitcoin, which on Monday had touched $8,939.18, its highest level in more than a year, was last up 0.15% at $8,783.11. The cryptocurrency topped $8,000 for the first time since July 2018 on May 13.

The euro held firm in early Monday trade after pro-European Union parties withstood more fragmentation than before to hold on to two-thirds of seats in the EU parliament elections, limiting gains in nationalist opponents.

The common currency traded at $1.1211 in Asian trade, near its highest levels in 1 1/2 weeks, and off a two-year low of $1.11055 touched on Thursday.

While center-right and center-left blocs are losing their shared majority, surges in the Greens and liberals meant parties committed to strengthening the union held on to two-thirds of seats, official projections showed.

The results dented the hopes of anti-immigration, anti-Brussels National Rally led by Marine Le Pen, Italian Deputy Prime Minister Matteo Salvini and others who have been opposing attempts to forge closer EU integration.

“It looks like pro-EU parties still have a majority. To be sure, we see a rise of anti-EU parties in some countries but it is not like they are winning an outright majority,” said Minori Uchida, chief currency analyst at MUFG Bank.

“I’d expect markets’ focus to shift back to U.S.-China relations,” he said.

Trading was seen subdued on Monday due to market holidays in London and New York, limiting moves in other currency pairs.

The U.S. currency traded at 109.45 yen, up 0.15%, underpinned by Japanese players’ bargain-hunting.

Buying interest from Japanese investors is strong when the dollar dips near 109 yen, said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities.

“Data shows Japanese investors bought a large amount of foreign bonds a few weeks ago when the dollar fell near 109 yen. There’s demand from Japanese companies that need dollar for their M&A deals,” he said.

Still, the U.S. currency is not far from a three-month low of 109.02 touched two weeks ago, hit amid worries about escalating tensions between Washington and Beijing over trade and technology.

The dollar has been also capped against the yen as U.S. President Donald Trump is seen putting pressure on Japan to take measures to reduce its trade surplus with the United States.

Trump, who arrived in Tokyo on Saturday, tweeted on Sunday that much of the trade negotiation with Japan will wait until after the country’s election in July.

The British pound ticked up 0.15% to $1.2731, having regained some ground after Prime Minister Theresa May set out a departure date, bouncing back from a 4-1/2-month low of $1.2605 set on Thursday.

But the prospect of a “no deal” Brexit was fast becoming the central battle of the race among contenders to succeed May, with four of eight leadership hopefuls having said Britain must leave the EU on Oct. 31 even if this means a no-deal Brexit.

The dollar held steady on Friday, having come off two-year highs on lower U.S.yields in the previous session amid fears that a trade war with China will hurt the U.S. economy more than previously thought.

The greenback was not helped by rising expectations for an interest rate cut by the U.S. Federal Reserve later this year to help boost the world’s biggest economy.

Against a basket of key rival currencies, the dollar index was largely unchanged at 97.906, having fallen from a two-year high of 98.371 overnight. The index is still up 1.8% for the year.

“Global risk aversion stemming from the intensifying U.S.-China trade tension is causing the stronger yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Markets are pricing in the potential negative impact on the U.S. economy and the U.S. equity markets,” he said, referring to U.S.-China trade tensions.

On Thursday, U.S. President Donald Trump said U.S. complaints against Huawei Technologies might be resolved within the framework of a U.S.-China trade deal, while at the same time calling the Chinese telecommunications giant “very dangerous.”

The benchmark 10-year U.S. Treasury note yield was last up slightly at 2.3309%.

Overnight, it fell to its lowest since October 2017 after an early read on U.S. manufacturing activity for May posted its weakest pace of growth in almost a decade, suggesting a sharp slowdown in economic growth was underway.

There was only a 38.2% expectation on Thursday that U.S. interest rates will be at current levels in October of this year, compared to 58.3% a month ago, according to the CME Group’s FedWatch tool.

Against the yen, the dollar edged up to 109.695 yen, having giving up two-thirds of a percent overnight to record its steepest drop in a single session in two months.

The greenback is still 0.6% above a three-month trough of 109.02 yen touched on May 13.

The Australian dollar held steady at $0.6904, putting it on track to finish the week with a 0.5% gain, its first positive weekly performance in six weeks.

Elsewhere in the foreign exchange market, the euro was flat at $1.1183, having bounced from a two-year low of $1.11055 during the previous session.

The single currency came under pressure after a private survey showed activity in Germany’s services and manufacturing sectors fell in May, aggravating fears about the effect of unresolved trade disputes on Europe’s largest economy.

Compounding these worries, European parliamentary elections began on Thursday with eurosceptic parties expected to do well, raising concerns about the single currency’s stability.

The dollar hovered near a four-week high on Wednesday, supported by higher U.S. yields after the United States eased trade restrictions on Chinese telecommunications equipment maker Huawei Technologies.

The move came as a relief to markets hit by escalating trade tensions between the United States and China, though analysts said sentiment remained fragile with tariff negotiations between the world’s two largest economies yet to produce a durable solution.

“The trade dispute won’t be resolved easily, so the risk-off mood won’t come off all of a sudden. I think market sentiment will rather improve one small step at a time,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Against a basket of key rival currencies, the dollar was last a shade lower at 98.014, having brushed a 3-1/2-week high of 98.134 overnight. The index has risen 1.9% so far this year.

The U.S. Commerce Department blocked Huawei Technologies from buying U.S. goods last week, leading several companies to suspend business with the world’s largest telecoms equipment maker.

Chipmakers, many of which sell to Huawei, bore the brunt of the sell-off.

But late on Monday, the United States granted Huawei a licence to buy U.S. goods until Aug. 19.

Against the yen, the dollar was largely steady at 110.49 yen, having hit a two-week high of 110.675 during the previous session. The greenback has recovered 1.4% from a three-month trough of 109.02 yen touched on Monday last week.

Japan’s exports fell 2.4% in April from a year earlier, down for a fifth straight month, in a sign of weakness in external demand, finance ministry data showed, compared with a 1.8% decrease expected by economists in a Reuters poll.

Sumitomo Mitsui’s Sera said the yen’s weakness overnight was thanks to the higher U.S. Treasury yields, which ticked up in response to the recovery in U.S. equities.

“When yields are rising, it’s natural for the dollar to be bought. I think moves in U.S. yields are really important,” she said.

The 10-year U.S. Treasury note yield was last largely unchanged at 2.423% after moving further off a seven-week low of 2.354% brushed on Thursday during the previous session.

The euro was steady at $1.1162.

The single currency, which has given up 0.9% from this month’s high touched on May 1, has been under pressure in recent weeks on dollar strength and due to concerns the upcoming European parliamentary elections may see euroskeptic parties faring well.

The pound was at $1.2713, hovering near a four-month low of $1.2685 touched overnight. It briefly rose overnight after Prime Minister Theresa Mayset out a “new deal” for Britain’s departure from the EU, offering sweeteners to Parliament including the chance to vote on whether to hold a second referendum to try to break the impasse over Brexit.

Yet traders doubted that a fractious Parliament would have to back any new referendum.