FX Rate News

The yen slipped and the Australian dollar rose on Wednesday as concerns over the U.S.-China tariff war receded further following a Financial Times report that the two sides have resolved most of the issues standing in the way of a trade deal.

The yen was a touch lower at 111.455 per dollar after brushing 111.53, its weakest since March 20.

The Japanese currency, a perceived safe-haven, is often sold when risk aversion abates in the broader markets.

“The latest trade-related headlines are adding to the ‘risk-on’ mood in the markets,” said Koji Fukaya, president of FPG Securities in Tokyo.

“That said, the overall response by currencies has been calm so far, as few expected U.S.-China trade negotiations to actually end in acrimony. We now need to see whether any agreement on trade issues can lead to an amendment in recently subdued economic views.”

The Australian dollar gained 0.35 percent to $0.7097, trimming a bulk of the losses suffered the previous day in response to the Reserve Bank of Australia’s policy decision.

The RBA on Tuesday left interest rates unchanged as expected but its statements were seen by some as hints towards a shift to easier monetary policy going forward.

The Aussie climbed 0.55 percent to 79.17 yen.

“Major central banks are embracing dovish rhetoric, which supports ‘risk on’ in the markets. The yen stands to remain on the defensive under such conditions,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The Australian dollar is sensitive to shifts in risk sentiment and also reacts to expectations towards the economic fortunes of China, the country’s main trading partner.

The dollar index against a basket of six major currencies was down 0.1 percent at 97.236, having lost some traction after climbing a 3-1/2-week peak of 95.517 the previous day.

The greenback had reached that high as ebbing risk aversion in the broader markets pushed up long-term U.S. yields from 15-month lows.

The sharp bounce by Treasury yields ran out of steam, however, slowing the dollar’s advance in turn.

The pound was effectively flat at $1.3136.

Sterling had gained 0.25 percent the previous day after Prime Minister Theresa May said she would seek another Brexit delay to work with the opposition Labour leader on an alternative EU divorce deal, a last-ditch gambit to break an impasse over Britain’s departure.

The euro nudged up 0.15 percent to $1.1224 after slipping overnight to $1.1183, its lowest since March 8, weighed by a decline in German bund yields.

German yields have been anchored below zero as the deadlock over Brexit has fueled investor demand for the safe havens.

Sterling fell across the board on Monday as uncertainty rose after British lawmakers failed to find a convincing majority for any alternative option to Prime Minister Theresa May’s Brexit deal.

Lawmakers grabbed control of the Brexit process for a second day on Monday in order to try to find a majority for an alternative way forward that could break the parliamentary deadlock.

But with no clear majority emerging for any of the indicative votes, traders dumped the British currency on concerns that Britain may fall out of the European Union without negotiating a deal on April. 12.

Sterling fell to $1.3048, down nearly 1 percent from levels before the decision on the vote. Against the euro, it fell by a similar margin to 85.84 pence.

The dollar edged up on Thursday as many of its peers weakened after more central banks shifted to dovish policy stances amid a deteriorating global economic outlook.

The latest switch came from the Reserve Bank of New Zealand (RBNZ), which stunned markets on Wednesday by saying the next move in rates is likely to be down, joining a growing list of central banks that had turned dovish.

The dollar index against a basket of six major currencies was 0.1 percent higher at 96.879 and headed for its third day of gains.

With many of its peers going on the defensive, the dollar has been able to brush aside a decline by benchmark U.S. Treasury yields to 15-month lows.

“Treasury yields are indeed lower. But this isn’t impacting the dollar very much as Treasury yields are still at attractive levels relative to those in the euro zone and now New Zealand, which has just turned dovish,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“So it is currencies like the euro, which is being dragged down by negative German yields, and the New Zealand dollar, which are suffering losses and allowing the dollar to rise in turn. ”

The euro was a touch higher at $1.1253. The single currency has still lost 0.45 percent this week with the benchmark 10-year bund yield having fallen to 2-1/2-year low of minus 0.09 percent.

The euro’s upside was limited after European Central Bank President Mario Draghi said a hike in interest rates could be further delayed.

Growth-sensitive currencies have taken a beating recently on rising risks to the global economy, highlighted by the shakeout in U.S. bond yields, which markets have read as a signal of a future recession.

The New Zealand dollar crawled up 0.25 percent to $0.6815, after sliding 1.6 percent the previous day.

The Australian dollar, which often moves in sympathy with the kiwi, added 0.15 percent to $0.7096. The Reserve Bank of Australia last month abandoned its long-held tightening bias and markets there are pricing in a cut this year.

The Aussie had shed nearly 0.7 percent on Wednesday along with the plummeting kiwi.

The pound was flat at $1.3188 after going as low as $1.3143 earlier on Thursday.

Sterling was capped after an offer by British Prime Minister Theresa May to quit to get her European Union divorce deal through parliament failed to win over key opponents of the agreement.

Britain was supposed to leave the bloc on Friday but Brussels agreed last week to put back the divorce date until April 12 to give it a chance to resolve a three-year crisis that has split the country down the middle.

However, it still remains uncertain how, when or even if the United Kingdom will leave the EU.

Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo, said the prospect that Brexit could be scrapped altogether through another referendum is a potential risk that could weigh on the yen.

“A second referendum resulting in ‘remain’ would fuel risk appetite and cause the yen to be sold. The shock from such an outcome could equal that of the first referendum,” Karakama added.

The yen, a perceived safe haven, had rallied hard in June 2016 when Britain chose to leave the EU through a national referendum, causing massive risk aversion in the financial markets.

The yen was 0.3 percent firmer at 110.19 to the dollar amid a slide in Japaneseshares, but it was still some distance away from a six-week peak of 109.70 scaled on Monday.

The 10-year U.S. Treasury note yield slipped to 2.34 percent, its lowest since December 2017, on worries about a global recession and after the RBNZ embraced a dovish tone on interest rates.

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.