The FOREX-Dollar rises on haven bids, while the yen regains ground.
The dollar rose broadly on Thursday as investors increased their bets that the Bank of Japan would abandon its yield curve control policy, while the yen rose as investors increased their bets that the Bank of Japan would abandon its yield curve control policy. Weak data from the United States released on Wednesday showed that retail sales fell by the most in a year in December, and manufacturing output fell by the most in nearly two years, fueling fears that the world's largest economy is heading for a recession.
The dollar rose broadly on Thursday as investors increased their bets that the Bank of Japan would abandon its yield curve control policy, while the yen rose as investors increased their bets that the Bank of Japan would abandon its yield curve control policy.
Weak data from the United States released on Wednesday showed that retail sales fell by the most in a year in December, and manufacturing output fell by the most in nearly two years, fueling fears that the world's largest economy is heading for a recession. "Those weak data reinforced market concerns about an impending US recession... (which) supported the dollar, and I believe that will become a growing narrative in the coming months," Carol Kong, a currency strategist at Commonwealth Bank of Australia.
The pound fell 0.17% to $1.2327, moving away from the previous session's one-month high of $1.2435, while the Australian dollar fell 0.49% to $0.6907, following a 0.64% loss on Wednesday. The euro fell 0.02% to $1.0792, still a long way from Wednesday's nine-month high of $1.08875, even as French central bank chief Francois Villeroy de Galhau maintained a hawkish stance on the European Central Bank's rate-hike path.
The fresh wave of risk aversion, exacerbated by news of job cuts at tech behemoths Microsoft and Amazon, kept the dollar bid. "The effects of the FOMC tightening will become increasingly visible," Kong predicted.
However, the dollar failed to gain ground against the Japanese yen, closing 0.4% lower at 128.42 yen, undoing much of the previous day's rally in the immediate aftermath of the BOJ's decision to maintain its ultra-easy monetary policy. In defiance of market expectations, the BOJ maintained its interest rate targets and yield band, instead devising a new weapon to prevent long-term rates from rising too much, in a show of resolve to maintain its YCC policy for the time being.
Following the decision, the yen fell 2% against the dollar and other currencies, as did Japanese government bond yields, which fell the most in two decades at one point on Wednesday. The euro was last 0.39% lower at 138.58 yen, while sterling fell 0.23% to 158.27 yen, as markets continued to test the resolve of the BOJ's ultra-dovish stance.
"I think it reflects the fact that market participants are still speculating on a change in the Bank of Japan's policy despite their inaction yesterday," CBA's Kong explained. "While there are still high expectations for a policy shift... I believe the yen will remain fairly elevated in the near term." In other news, the New Zealand dollar fell 0.31% to $0.6425. New Zealand Prime Minister Jacinda Ardern said in a televised statement on Thursday that she will not run for re-election and will step down no later than early February.
The US dollar index rose 0.09% to 102. The 42 against a basket of currencies.