Authors: Rae Wee and Alun John
SINGAPORE/LONDON (Reuters) – The Japanese yen strengthened on Wednesday amid growing bets on an interest rate hike at the next Bank of Japan meeting, while cooling British inflation brought relief to the pound but investors were reluctant to buy too much of both currencies ahead of U.S. price data.
US Consumer Price Index data for December is the main global macroeconomic release scheduled this week, and the figure exceeds the 0.2% monthly escalate in the core CPI, which markets expect could further limit the scope of interest rate cuts. Reserves Federal this year.
That, in turn, would likely provide more impetus to this month’s global bond selloff, which also supported the dollar.
However, sufficient information was already available to keep currency traders busy, especially in Japan, where the yen strengthened on comments from BOJ Governor Kazuo Ueda, who said the central bank would raise interest rates and adjust the degree of monetary support if continued improvement of the economic situation and price conditions.
His comments come just a day after Deputy Governor Ryozo Himino said the BoJ would debate the possibility of raising interest rates at next week’s policy meeting.
The dollar recently lost 0.6% against the yen, to 156.99, after Japanese government bond yields, particularly the yield on two-year interest rate-sensitive bonds, hit multi-month highs. ()
“It would be strange if the BoJ missed its January meeting,” said Jordan Rochester, head of EMEA fixed income, FX and commodities strategy at the firm Mizuho (NYSE:), pointing to a number of factors, including Japan’s rising CPI, stable wages and higher oil prices.
“A lot, of course, depends on next Monday with Trump,” he added, referring to the inauguration of American president-elect Donald Trump. “If it weren’t for the risk of this event, the market would have been close to full valuation at the meeting.”
“This unfavorable move this morning is a valid thing that should be noticed.”
Eyes were also on the UK, where data showed inflation unexpectedly slowed last month and key measures of price growth – monitored by the Bank of England – fell more sharply, welcome news for Finance Minister Rachel Reeves after a market sell-off.
While British government bond yields fell sharply after the data, causing investors to raise expectations of a Bank of England rate cut in February, the pound strengthened slightly that day at $1.2223. [GB/]
Analysts say that while last week’s rise in gold yields sparked concerns about the health of the British economy and sent the pound lower, lower gold yields are now providing support for sterling, contrary to the typical trend. [GBP/]
Elsewhere, the euro held steady at $1.0302, along with most other major currencies, including the Swiss franc at $0.9119 per dollar and the Australian dollar at $0.6201.
Eyes were also on China, where the US dollar traded just a fraction of the daily limit of declines in US dollar trading, maintaining a tender stance despite a continued stronger-than-expected revision in official guidance and signs of tightening in domestic money markets. [CNY/]
