FX Rate News

The yen held near six-week highs against the dollar on Monday as fears of economic recession, fanned by inversion of the U.S. bond yield curve, sapped demand for higher-yield, growth reliant assets and drove investors toward “safe” destinations.

Attention is focused heavily on the state of world growth after the U.S. Federal Reserve turned tail on raising interest rates, lacklustre Chinese data and a danger of a chaotic Brexit that would hit the British and European economies.

With U.S. 10-year yields now almost two basis points below three month yields — a classic recession signal — equities have retreated while the yen and gold prices are up. The yen traded as high as 109.70 against the greenback but eased to trade around flat by 740 GMT.

“The Fed’s pivot has lowered U.S. real rates across the curve. As a result, U.S. fixed income and equity markets may have become less attractive for Japanese investors,” analysts at Goldman Sachs told clients, adding they recommended staying short the dollar versus yen.

As cash rushed into Japanese assets, Japanese 10-year government bond yields plunged to 31-month lows.

Investors have for some time favoured the dollar which has the highest yields in the G10, and last week saw “long” positions on the dollar at a new 2019 high, according to calculations by Reuters and data from the Commodity Futures Trading Commission.

But the dollar slipped versus a basket of currencies to around 96.6.

It enjoyed no benefit from news U.S. Special Counsel Robert Mueller had found no evidence of collusion between Russia and President Donald Trump’s election campaign team.

The euro likewise was flat against the dollar at $1.13080, undermined by Friday’s dire manufacturing PMI figures and trepidation that Germany’s IFO Institute could release a downbeat assessment of Europe’s biggest economy at 0900 GMT.

The currency had risen all the way to $1.14485 last week after the Fed meeting and hopes the euro bloc’s economy was starting to turn the corner.

But despite the growth scare, higher-yield currencies such as the Australianand New Zealand dollars held up reasonably well though the Canadian dollarlanguished near two-week lows.

The British pound lost roughly 0.2 percent against the dollar and euro at the beginning of a week that could decide the fate of Brexit as parliament is expected later on Monday to try and wrest control of the process from the prime minister.

The dollar was on the defensive on Tuesday, weighed by growing expectations the Federal Reserve would adopt a more accommodative policy outlook this week and concerns about slower U.S. economic growth.

The dollar index, which measures the greenback against a basket of six major currencies, dipped 0.1 percent to 96.43, hovering close to a two-week low touched overnight.

The index has lost 1.3 percent after hitting a three-month high of 97.710 on March 7, on views the Fed will strike a dovish tone at its two-day policy meeting due to start later on Tuesday.

Many investors expect the Fed to keep its benchmark overnight interest rate unchanged and stick to its pledge of a “patient” approach to monetary policy.

“Around 30 percent of market participants are expecting a rate cut this year,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings.

“The focus is on the extent to which the Fed is able to take that into account without shocking the market,” she added.

Fed funds futures last priced in about 30 percent chance of a rate cut in 2019, compared with almost zero percent seen earlier this month.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said while the market is expecting more accommodative sentiments from the meeting, equity markets were unlikely to react positively to such a development.

“If the Fed really shows a gloomy outlook for growth and rates, then it’s also a negative for U.S. equities. Then that will be a negative for the dollar,” Yamamoto said.

“There is a high risk that whichever the outcome is, it will push down dollar/yen. ”

As the dollar took a breather, other major currencies advanced by default.

The yen rose 0.2 percent to 111.20 yen per dollar, extending its gains to a third session.

Sterling also gained, rising almost one-fifth of a percent to $1.3274. It had seesawed overnight after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.

The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday due to the deep uncertainty over Britain’s decision to leave the European Union.

The euro was slightly higher at $1.1344.

Investors’ focus on Tuesday was also on Germany’s ZEW economic index for March, due for release around 1000 GMT.

The German economy, Europe’s largest, barely avoided recession in the final quarter of last year, as the negative impact from global trade disputes and Brexit weighed on a decade of expansion.

“The ZEW expectation index has been improving for four consecutive months,” said Mizuho’s Yamamoto.

“If another month’s improvement is shown, then I think that will be quite positive for the euro.

The dollar licked its wounds on Monday after soft U.S. data increased bets the Federal Reserve will cut rates later this year while the pound hovered near nine-months high on hopes for a delay in Britain’s exit from the European Union.

The dollar’s index against a basket of six major currencies edged down 0.1 percent to 96.481, after having shed 0.81 percent last week, the biggest loss since late August.

Weaker-than-forecast U.S. economic data on Friday cemented expectations the Fed could strike a dovish stance this week, sending U.S. bond yields down to 10-week lows.

U.S. manufacturing output fell 0.4 percent in February, weakening for a second straight month, while factory activity in New York state was softer than expected this month with an index reading of 3.7.

The 10-year Treasuries yield fell to as low as 2.580 percent, its lowest since Jan. 4, while Fed funds futures priced in about 40 percent chance of a rate cut this year, compared with almost zero percent seen earlier this month.

“The 10-year yield closed below 2.6 percent, for the second time this year after closing below that level only on one day at the beginning of year,” said Chotarto Morita, chief strategist at SMBC Nikko Securities.

“If it stays below that level sustainably, it will be the first time since January 2018, when yields started rising on expectations of accelerating growth and inflation following tax cuts. Yields are slipping back as U.S. economic sentiment is cooling down,” he said.

Against this background, many investors expect the Fed to suggest rates will be on hold in the near future and to unveil a plan to end its balance sheet runoff later this year in its meeting ending on Wednesday.

“The focus is on how dovish the Fed will be. I got the impression that markets have gone a bit too far in expecting rate cuts. There’s a risk such views will be rolled back if the Fed’s dot plots show the board members still expect a rate hike this year,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

As the dollar loses steam, other major currencies rose by default. The euroinched up to $1.1336, flat in early Monday trade having gained 0.86 percent, the biggest weekly gain since late September.

The Australian dollar reacted more, gaining 0.4 percent to a two-week high of $0.7115.

The dollar fetched 111.50 yen, little changed on the day but off Friday’s nine-day high of 111.90.

The British pound stood not far from last week’s nine-month high of $1.3380, supported by relief that a no-deal Brexit will likely be averted. It last stood at $1.3292.

It is not clear if British Prime Minister Theresa May can secure support for her Brexit deal in the parliament, which has twice rejected her offer by a wide margin.

May has only three days to win approval for her deal to leave the European Union if she wants to go to a summit with the bloc’s leaders on Thursday.

May is warning hard-line Brexiteers that unless they approved her Brexit divorce deal, Britain’s exit from the European Union could face a long delay and could involve taking part in the bloc’s parliamentary elections.

Sterling rose on Wednesday after U.K. lawmakers rejected the idea of leaving the European Union without a Brexit deal in place.

The pound was up 1.42 percent against the dollar at $1.3257.

Britain’s parliament voted at 3:00 p.m. EST against the risk of a “no-deal” Brexit, 24 hours after a second defeat for Prime Minister Theresa May’s divorce treaty left Britain heading into the unknown.

Investors expected that British lawmakers would resoundingly vote against leaving the European Union in 16 days’ time without a transition agreement.

The vote Wednesday set up a vote for Thursday on delaying Britain’s EU departure, a move that could bolster the pound because investors say it would increase May’s chances of securing a deal or even lead to Brexit being called off altogether if a second referendum is held.

The pound has swung wildly in the last 48 hours between $1.30 and $1.33 and the currency has at junctures been at its most volatile since the June 2016 Brexit referendum.

Earlier, sterling’s gains were spurred earlier by a BBC media report that Attorney General Geoffrey Cox had further legal advice which might help May win over lawmakers to her Brexit deal.

Sterling rallied on Tuesday on speculation that British Prime Minister Theresa May might be closer to securing approval for her Brexit deal after the European Commission agreed to some changes to it ahead of a vote in the British parliament.

The pound jumped as high as $1.3290 as May won legally binding Brexit assurances from the European Union, in a last ditch attempt to sway rebellious British lawmakers who have threatened to vote down her divorce deal.

“The market was sensitive to positive news rather than negative news as it had already priced in very bad scenarios,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

Yamamoto said the likelihood remained low that British lawmakers would now agree to May’s deal in a vote expected later on Tuesday, just over two weeks before Britain’s scheduled March 29 departure from the European Union.

After paring some of its earlier gains, sterling was last trading half a percent higher on the day at $1.3214. It was still up 2.1 percent from a low of $1.2945 at one stage on Monday.

The euro slipped to its lowest on the pound since May 2017 at 84.71 pence, before recovering the losses somewhat. It was last quoted down one-third of a percent at 85.19 pence.

Most other currencies stayed within familiar trading ranges before U.S.February inflation figures due at 1230 GMT.

Market sentiment received a modest boost after data on Monday showed U.S. retail sales rose moderately in January, lifted by an increase in purchases of building materials and discretionary spending.

The dollar index, which measures the greenback against a basket of six rivals, was down 0.2 percent at 97.056 as some investors bought riskier assets.

However, the dollar tacked on 0.2 percent against the Japanese yen to 111.41 yen on the back of the improved appetite for risk.

If May loses the vote on her Brexit deal on Tuesday, she has said lawmakers will get a vote on Wednesday on whether to leave the EU without a deal and, if they reject that, then a vote on whether to ask for a limited delay to Brexit.

At a joint news conference with E.U. Commission head Jean-Claude Juncker late on Monday, May announced three documents aimed at addressing the most contentious part of the exit deal she agreed in November — the Irishbackstop.

“Seeing them together in the same screen is a positive – that there is some hand holding there and working together to move forward,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

The Irish backstop is an insurance policy aimed at avoiding controls on the sensitive border between the British province of Northern Ireland and EU member Ireland.

“If they can break (the backstop) down to a level where there can be some negotiation or at least compromise on both sides, there definitely does seem (to be) light at the end of the tunnel,” added Wakabayashi.

The euro, which has struggled recently in line with a sputtering euro zone economy, found a measure of support on the improved sentiment and the Brexit news.

The single currency was last up 0.1 percent at $1.1259, extending recent gains to a third session.

The dollar edged up on Monday, hovering close to a near three-month high as investors continued to favor the greenback amid global growth concerns, while sterling kept declining on uncertainty over Britain’s exit from the European Union.

The dollar index, which measures the greenback against a basket of six key rivals, gained 0.1 percent to 97.412.

The index was 0.3 percent shy of its recent peak of 97.710 hit last Thursday, its highest since Dec. 14. It is up 1.3 percent this year.

The euro was basically flat at $1.1232. The single currency had fallen to its weakest level since June 2017 on Thursday, hurt by dovish signals from the European Central Bank (ECB).

“After the ECB’s big downgrade of the growth outlook for the euro area, together with the weaker-than-expected Chinese export and import data, the worry over the global economy is re-surging again,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“That’s pushing down the euro and other currencies,” he said. “The U.S. is not particularly strong, but other areas are weak. That’s why the dollar is relatively strong. ”

Data on Friday showed U.S. employment growth almost stalled in February, with the world’s top economy creating a measly 20,000 jobs, far fewer than expected by analysts.

But traders found some hope in figures showing the U.S. employment rate slipped back below 4 percent and average hourly earnings accelerated by 0.4 percent, helping to reduce the dollar’s losses during the previous session.

On Monday, most currencies stayed within well-trodden trading ranges before U.S. retail sales figures for January due at 1230 GMT and U.S. February inflation figures expected on Tuesday.

The big exception was the pound, which gave up one-third of a percent to $1.2973 after briefly dipping to a near three-week low on nervousness over Brexit. The currency had already fallen for seven straight sessions.

Sterling came under renewed pressure after British foreign minister Jeremy Hunt said on Sunday Brexit could be reversed if lawmakers reject the government’s exit deal.

His remarks followed a warning from two major eurosceptic factions in parliament that Prime Minister Theresa May was likely to face heavy defeat in a parliamentary vote on Tuesday on whether to approve her EU exit plan.

The British leader is scrambling — so far unsuccessfully — to secure last-minute changes to an EU exit treaty ahead of the vote, which comes less than three weeks before the United Kingdom is set to leave the European Union on March 29.

“Speculators seem to be taking sell positions in the pound after it was bought for a short time as participants are awaiting the Brexit outcome,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Mizuho’s Yamamoto said traders are trimming holdings of sterling on reduced expectations of a rate hike by the Bank of England, making the currency increasingly sensitive to near-term events, such as the parliamentary vote.

“These days, the UK inflation data isn’t as strong as before,” he said. “The rate-hike expectation after the avoidance of the no-deal Brexit is fading away.”

Against the Japanese yen, the dollar was a shade lower at 111.125 yen

Major currencies mostly stuck to tight ranges on Thursday as traders focused their attention on the European Central Bank’s (ECB) policy review later in the day, while the Australian and Canadian dollars struggled near two-month lows.

The yen and the Swiss franc edged up as investors sought shelter in the safe-haven assets amid signs of tension between the United States and North Korea and renewed fears of a slowdown in global growth.

The ECB is expected to cut growth forecasts and is likely to provide its strongest signal yet that stimulus is coming in the form of more cheap long-term bank loans to fight an economic slowdown.

The euro trod water on Thursday at $1.1307, about 1.0 percent below a one-month high hit on Thursday last week.

“The market has already been pricing in that the economic growth in the euro zone isn’t good,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“Though I think there is a likelihood there may be a chance to their (ECB’s) forward guidance, that also has been already priced to some extent,” he said.

The OECD on Wednesday cut forecasts again for the global economy in 2019 and 2020, following on from previous downgrades in November, as it warned that trade disputes and uncertainty over Britain’s exit from the European Union would hit world commerce and businesses.

The Australian and Canadian dollar hit their two-month lows as investors cut back holdings on expectations policymakers would leave interest rates alone for the time being or even lower them to counter weakness in those economies.

The Aussie hit a fresh two-month low of $0.70205 after data showed retail sales rose 0.1 percent in January, missing expectations for a 0.3 percent increase.

The currency was already nursing losses from the previous day when below-par fourth-quarter economic growth figures reinforced evidence of slowing domestic momentum and backing expectations for a rate cut this year.

The Australian dollar was last at $0.7044.

The Bank of Canada (BoC) on Wednesday said there was “increased uncertainty” about the timing of future rate hikes as it held interest rates steady at 1.75 percent as expected.

The loonie fell as low as C$1.3457 after the release of the BoC’s latest policy statement, its lowest against the greenback since Jan. 4. On Thursday, it was a tad stronger on the day, last trading at C$1.3436.

The yen and the Swiss franc, both perceived as safe-haven currencies, found support amid signs of tension between the United States and North Korea.

New activities have been detected at a North Korean intercontinental ballistic missiles plant, South Korean media said on Thursday, as U.S. President Donald Trump said he would be very disappointed if Pyongyang rebuilt a rocket site.

“It’s news that leads to buying of the yen and, in that regard, also affects the Swiss franc,” said Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo.

“But there was a move of only 5 bips or 10 bips, so it’s hard to say there was a big response to this,” he said.

The yen rose one tenth of a percent to 111.65 yen per dollar, while the Swiss franc was also up 0.1 percent, at 1.0043 francs per dollar.

The dollar index, which measures the greenback against a basket of six key rivals, was steady at 96.852.

Traders have remained bullish on the dollar in view of the continuing uncertainties over Brexit and whether U.S.-China negotiations will produce a substantive trade deal.

The dollar index has gained 1.1 percent over the last six trading sessions after hitting its lowest level since early February on Thursday last week.

The dollar stood close to a two-week high against key peers on Tuesday, shored up by a resilient U.S. economy and a flagging euro ahead of a European Central Bank policy meeting.

Higher U.S. bond yields kept the dollar well bid, and though rates were off overnight peaks, traders bet the greenback had more going for it than some of its peers.

The euro remained wobbly before the ECB meeting on Thursday. The ECB is facing growing pressure to address how to protect the euro zone economy from a protracted slowdown.

In contrast, the dollar has enjoyed some support from higher U.S. Treasury yields as recent data, including U.S. fourth quarter gross domestic product, has eased fears of a potentially rapid loss in economic momentum.

The dollar index versus a group of six major currencies was 0.05 percent higher at 96.726 after going as high as 96.816 the previous day, its strongest since Feb. 19.

Although benchmark U.S. Treasury yields pulled back from peaks seen in late January, underlying demand for the dollar remained solid in a sign of confidence over the economic outlook.

The euro dipped 0.1 percent to $1.1326. It had brushed an 11-day low of $1.1309 on Monday.

“The ECB meeting is unlikely to provide big surprises, but the euro is getting top heavy as the central bank, after all, is expected to strike a dovish tone,” said Shin Kadota, senior strategist at Barclays.

The dollar rose 0.15 percent to 111.92 yen, bouncing back from losses suffered the previous day.

Against a broadly firmer greenback, the Australian dollar was down 0.2 percent at $0.7077, cancelling out modest gains made overnight on expectations for further easing of trade tensions between the United States and China.

The Australian dollar sagged after Tuesday’s Caixin/Markit China purchasing managers’ index (PMI) showed the services sector in the world’s second largest economy easing to a four-month low. The currency is sensitive to developments in China, Australia’s main trading partner.

The Aussie briefly ticked up after the Reserve Bank of Australia left interest rates unchanged at 1.5 percent as widely expected on Tuesday.

“The currency got some lift as the RBA refrained from taking an even more dovish stance. The focal point, however, is still on potential easing by the RBA and the Australian dollar remains on the defensive,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The Australian dollar took a big hit last month after the RBA stepped back from its long-standing tightening bias, saying the next move in rates could just as well be down as up.