Yen Weakens Briefly as Dollar Yields Dictate Trading
Japan’s Yen Takes Center Stage in Asia
Japan’s yen took the spotlight in Asia on Monday, briefly weakening to the 150-per-dollar level. Investors who bet on a further rise in dollar yields lost out to those who expected Japanese authorities to intervene in the markets. The risk of Israel’s war on Hamas becoming a wider regional conflict kept markets on edge as Israeli air strikes continued in Gaza. Meanwhile, the United States dispatched more military assets to the region.
U.S. Treasuries Subdued Ahead of ECB Meeting
U.S. Treasuries were subdued as investors prepared for a European Central Bank meeting and awaited U.S. GDP data later in the week. Ten-year yields hovered around 4.98%, having briefly surpassed 5% after Federal Reserve Chair Jerome Powell hinted at tighter financial conditions due to the strength of the U.S. economy and hot labor markets. The dollar added 0.1% to 106.28, with the euro down 0.2% at $1.0574.
Two Camps at Odds over Yen
The Japanese yen last traded at 149.93 per dollar, after briefly easing early on Monday to 150.14. Some investors believed the Bank of Japan (BOJ) would defend the 150 level, while others saw rising U.S. yields as a reason to keep pushing the dollar up. Masafumi Yamamoto, chief currency strategist at Mizuho Securities, noted the ongoing battle around 150 and explained that the BOJ had shown it would not let domestic yields rise sharply. The benchmark JGB yield was at 0.855%, its highest level since July 2013.
DXY Index and Stability in Yen and Euro
The trade-weighted dollar index, DXY, is up 6.7% since mid-July but has remained relatively steady this month. Analysts attribute this stability to the yen and euro, both major components of the DXY trade index. Sean Callow, a currency strategist with Westpac, finds it puzzling that DXY hasn’t retested the early October lows given its strong foundations of high yields backed by strong growth, energy production concerns, and its status as a haven. Nonetheless, Callow believes DXY downside is limited and predicts a target of 109 in Q4/Q1.
Oil Prices Slide Amid Diplomatic Efforts
Oil prices fell over $1 on Monday due to diplomatic efforts made over the weekend to contain the conflict between Israel and Hamas. This reduction in concerns about a major disruption to oil supplies caused oil futures to dip as low as $91.14 a barrel, though they remain up approximately 10% over the past 10 days.
ECB Meeting and Bitcoin Rise
The European Central Bank (ECB) meets on Thursday, and a Reuters poll suggests that while the ECB is done raising rates, it won’t begin easing until at least July 2024. In September, the ECB raised its key interest rates by 25 basis points. In the world of cryptocurrencies, bitcoin rose 3.6% to $30,670.63.
With all eyes on the yen and the outcome of the ECB meeting, investors are cautiously navigating the uncertainties in global markets. As the week progresses, the focus will shift to the latest U.S. GDP data, which will provide further insights into the strength of the world’s largest economy.
