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- Nov, 19 Yen Finds Support On Flight To Safety, Ahead Of BoJ Rate Decision
- Nov, 18 Canadian Dollar Range Bound As Oil Remains Capped
- Nov, 17 Pound Strength May Continue If Inflation Data Fuels Interest Rate Expectations
- Nov, 16 Euro Supported As Equity Markets Soar, Is It Sustainable?
- Nov, 13 Yen Becomes Increasingly Vulnerable As Risk Appetite Grows
- Nov, 11 New Zealand Dollar At Risk If Commodities Start To Lose Favor
- Nov, 10 Pound May Plot New Direction If Inflation Report Influences BoE
- Nov, 09 Euro Driven Higher By Soaring Equity Markets
- Nov, 04 Australian Dollar Continues To Track Commodities Higher, Ignoring Dovish RBA
- Nov, 03 Euro Following Equity Markets Lower, ECB Rate Decision To Impact Direction
- Nov, 02 Pound Remains Directionless With BoE Meeting Ahead
- Oct, 30 Canadian Dollar Slumps Following Oil’s Lead
- Oct, 28 Euro Weakness May Continue, If US GDP Figures Fail To Revive Risk Appetite.
- Oct, 27 Pound’s Direction to Come from BoE Meeting, Credit Report Will Provide Insight
- Oct, 23 New Zealand Dollar Strength May Continue With A Potential RBNZ Rate Hike Looming.
- Oct, 22 Euro and Dow Challenge Psychological Barriers, Will The Rally End?
- Oct, 21 Canadian Dollar Soars On Higher Oil, But Will Crude Run Out Of Steam?
- Oct, 20 Pound Starting to Take Its Cue From Interest Rate Expectations, Will BoE End QE?
- Oct, 16 Will A Pullback In Equities Sink The Euro?
The Yen is starting to regain its status as a funding currency as other countries begin to plan their exit strategies from current stimulus efforts. The BoJ signaled that it wouldn’t be following its counterparts lead as it expects the economy will remain in a deflationary period over the next two years.
USD/JPY
The Yen is starting to regain its status as a funding currency as other countries begin to plan their exit strategies from current stimulus efforts. The BoJ signaled that it wouldn’t be following its counterparts lead as it expects the economy will remain in a deflationary period over the next two years. In its semiannual report, the central bank forecasted that the country’s potential growth rate has slowed to 0.5% which is down from its April forecast of 1.0%. The dimming prospects for growth and higher interest rates may start to weigh on the yen as investors look for higher yields outside the island nation. The yen is still battling the dollar for preferred safe haven status which has seen the USD/JPY’s correlation to risk wane. However, it has started to return to form and a strong U.S. labor report may end the dollar’s reign as the funding choice.
BoJ Interest Rate Expectations
The BoJ has traditionally kept their target rate very low and this is reflected in market expectations, as overnight index swaps are only pricing in 7 bps of rate hikes over the next twelve months from the central bank. For this reason yield expectations for the world’s second largest economy have little influence over its currency’s price action. As policy makers from other countries begin to start tightening, the increasing yield differential should become a weighing factor for the Yen.
FOMC Interest Rate Expectations
The FOMC left their benchmark rate unchanged at 0.25% and stated that they will keep rates “exceptionally low” for an extended period. It has become clear that the central bank will most likely wait until mid-2010 before considering tightening which should keep the greenback’s negative correlation to risk sentiment intact. We can see this reflected in Fed Funds futures which are currently pricing in a zero chance of a rate hike by the end of the year. March may be the earliest we could see the central bank look to raise rates and currently markets are only pricing in a 20% chance, down from 41.8% a month ago.
FOMC Interest Rate Expectations
The FOMC left their benchmark rate unchanged at 0.25% and stated that they will keep rates “exceptionally low” for an extended period. It has become clear that the central bank will most likely wait until mid-2010 before considering tightening which should keep the greenback’s negative correlation to risk sentiment intact. We can see this reflected in Fed Funds futures which are currently pricing in a zero chance of a rate hike by the end of the year. March may be the earliest we could see the central bank look to raise rates and currently markets are only pricing in a 20% chance, down from 41.8% a month ago.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
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