Yen Firms but Still Below 5-Month Peak against the Dollar

The yen inched up against the dollar on Monday but still traded below five-month peak. U.S. equities rebounded late last week, stifling demand for traditional safe haven currencies.

Yen and Dollar bills

Despite the dollar easing 0.1 percent to 108.70 yen, it was still above Friday’s 108.05 yen, its lowest since September. Just last week, the dollar dropped almost 1.3 percent against the yen.

The yen attracts demand during times when market stress is at its peak. This is because the currency is backed by Japan’s current account surplus, offering more resilience than currencies of deficit-running countries.

The dollar index is used to measure the strength of the greenback against a trade-weighted basket of six major currencies. The dollar fell 0.4 percent to 90.105. This followed a gain of 1.4 percent just the previous week, its strongest after almost 15 months.

Euro was up 0.3 percent to $1.2290 after falling 1.6 percent last week, its worst weekly performance since November 2016.

The U.S. S$P 500 was up 1.5 percent on Friday. This marked the end of a week when there were sudden bursts of buying. Despite this, it still recorded the worst week in the past two years. Analysts predict that there will be more volatile trading days ahead.

During Asian trading hours on Monday, the S&P 500 e-mini futures rose by 0.5 percent as of 0406 GMT. The MSCI’s broadest index of Asia-Pacific shares outside of Japan was up 1.1 percent.

Yen’s and Dollar’s Performance

There were reports made last week stating that the Japanese government has nominated Haruhiko Kuroda. He was chosen for a rare second term as Bank of Japan governor once his current term expires in April.

This goes to show that BOJ’s ultra-loose monetary policy will remain in place. Analysts saw the nomination as a factor that can potentially weigh on the yen and temper its gains.

The nomination is set to be presented to parliament later this month.

“It’s not as if the dollar is going to rise sharply against the yen in the next couple of days just because Kuroda is set to be re-appointed,” said senior analyst Satoshi Okagawa.

“But once the market settles down, focus will probably return to differences in monetary policy… and that could give the dollar an upward bias against the yen,” he added.

Okagawa also said that the yen is likely to take cues from moves in U.S. and global equities. He then further noted that it might take a few weeks for the markets to regain some calm.

Last week, the yen has risen the same time that equity markets plummeted and volatility soared. These happened following U.S. bond yields jumping on heightened worries regarding inflation.

Analyst Teppei Ino said that investors may be taking a wait-and-see stance ahead of data on U.S. consumer price index. The data is set to be released on Wednesday.

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