Yen Drops and Dollar Rises as Central Banks Maintain Stimulus Measures

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Yen Drops and Dollar Rises as Central Banks Maintain Stimulus Measures
Credit: © Reuters.

On Friday, the yen fell sharply against the dollar, trading at 148.31, following the Bank of Japan's decision to keep interest rates in negative territory. This move indicates that the bank is not in a hurry to wind down its large-scale stimulus program. Concurrently, the dollar rose by 0.2%, marking its 10th successive weekly gain, bolstered by a decline in the euro due to poor economic data from the Eurozone.

The Federal Reserve (Fed) has maintained its steady approach to interest rates, although there is speculation about a possible rate increase this year, extending into 2024. According to the CME FedWatch tool, market sentiment indicates a 45% chance of another rate hike this year and a 44% likelihood of rate cuts by early 2024.

Eren Osman, managing director of wealth management at Arbuthnot Latham, stated that the focus of the market has primarily been on the Fed's actions. "The massive week for central banks has really been all about the Fed. That is the focus of the market and that's what's driving the dollar right now," said Osman. He added that if U.S. economic data continues to improve, it would put an "upside risk" on interest rates, increasing the need for a soft landing.

Meanwhile, oil prices remained above $90 per barrel but were set for a slight weekly decrease after seeing more than a 10% rise over the past three weeks due to concerns over tight global supply. The MSCI's index of global equities was slightly weaker and down about 2.6% for the week so far.

Benchmark 10-year U.S. Treasury yields reached a 16-year high of 4.508%, trading at 4.478% in Europe, while 30-year yields reached their highest in twelve years, trading at 4.55%, up slightly on the day. ING Bank attributed the rise in yields to a re-evaluation of the Fed's higher-for-longer policy, which has created challenges for risk assets such as equities, credit, and emerging markets, but has supported the dollar.

The potential for a U.S. government shutdown in just 10 days was also being closely watched by markets. Amid these developments, silver prices experienced a slight dip following the Federal Reserve's meeting, but the market sentiment suggests anticipation for a forthcoming U.S. rate moderation.

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