July 18 2024: Japan’s yen climbed to a six-week high on Thursday, sparking speculation of official intervention, while traders anticipated the European Central Bank (ECB) meeting to guide the euro’s next move.
ECB Meeting and Euro Outlook
The euro stood at $1.0929, near Wednesday’s four-month peak, ahead of the ECB meeting where rates are expected to remain steady. The focus is on whether policymakers will support market bets of a rate cut in September.
“We expect the ECB to emphasize that future interest rate cuts will depend on further declines in inflation and wages growth,” said Joe Capurso of Commonwealth Bank of Australia. “The risk is that pricing for the September cut is reduced.”
Mixed Data Influences Currency Movements
The Australian dollar received a slight boost from mixed jobs data, trading at $0.6738, while the British pound dipped just below $1.30 following steady unemployment and slowing wages growth in May.
Yen’s Rally and Speculation of Intervention
The yen extended its sharp rally, reaching 155.37 per dollar in early Asian trading hours on Thursday, before stabilizing around 156.35. This level is five yen below where it stood a week ago.
Bank of Japan money market data suggested that authorities might have purchased nearly 6 trillion yen ($38.37 billion) last week. Traders indicated that this week’s movements exhibited signs of further intervention or markets being spooked by that possibility.
“Many traders and Japanese investors, after intervention, were looking to reload on their trades,” noted Rodrigo Catril, strategist at National Australia Bank in Sydney. “The big move on Wednesday would have caught them offside and triggered a reassessment or unwinding of those positions.”
Net yen shorts were near a 17-year high last week. Interest rate markets are pricing in over 60 basis points of U.S. interest rate cuts this year and approximately 20 basis points of hikes in Japan, narrowing the wide rates gap that had encouraged large short positions in the yen.
Analysts also pointed to remarks from U.S. presidential candidate Donald Trump, who described the dollar’s strength and the weakness of the yen and yuan as significant issues in a Bloomberg Businessweek interview, as contributing to market jitters.
Performance of G10 Currencies
The yen has been the worst-performing G10 currency against the dollar this year, losing over 9%, while the yuan is down about 2.2%.
China’s yuan firmed slightly as traders awaited news from a key leadership gathering in Beijing expected to conclude later in the day. It was last at 7.2576 per dollar.
New Zealand’s dollar held around $0.6071 after jumping through its 200-day moving average on Wednesday, following persistent domestic inflation concerns that paused bets on imminent interest rate cuts.
($1 = 156.3600 yen)
