After seeing its largest daily gain since mid-July the day before, the yen fell on Tuesday as market-moving remarks from Japan’s top central banker about the possibility of ending its negative interest rate policy resonated throughout the country.
In the meantime, the dollar recovered lost ground after seeing its worst daily decline since July 13, while the pound declined as a result of conflicting labour market data.
Kazuo Ueda, the governor of the Bank of Japan (BOJ), stated in a newspaper interview over the weekend that the bank could have enough information by year’s end to decide if it can halt negative rates. As a result of his comments, the yen saw its biggest daily gain versus the dollar since July 12 on Monday.
After reaching a one-week high of 145.91 in the previous session, the Japanese yen was last trading 0.1% down at 146.71 per dollar.
According to the market’s response, Ueda’s remarks were “a little more balanced” than you might have believed, according to Adam Cole, chief currency strategist at RBC Capital Markets.
“Japan is still a long way from meeting the criterion of sustainable 2% inflation, and the comments don’t really change much for me,” Cole continued.
Since the Federal Reserve started its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier, the yen has come under intense pressure against the dollar as a result of widening interest rate differentials with the US.
Hiroshige Seko, a senior member of Japan’s ruling party, expressed a different interpretation of Ueda’s comments, claiming that they indicated that the central bank will continue its programme of monetary easing.
In other markets, the euro fell 0.3% to $1.0718 after reaching a one-week high of $1.0771 prior to Thursday’s European Central Bank policy announcement, as the U.S. dollar somewhat reversed its losses from the previous day.
The pound dropped following a conflicting report on the labour market that revealed additional signs of slowdown in the three months leading up to July, yet wage growth persisted fast and at a rate higher than inflation.
When the public sector is excluded, private sector compensation hardly grew between June and July, according to ING UK economist James Smith.
The labour market data “doesn’t scream a need to keep hiking rates much further” as unemployment ticks up.
The last time we checked, the pound was unchanged against the euro and down 0.2% against the dollar at $1.2479.
DATA ON US INFLATION IN FOCUS
Traders were now focusing on the August inflation data for the United States, which is due on Wednesday, to determine how far the Federal Reserve may raise interest rates.
The U.S. dollar index, which had an eight-week winning streak at the conclusion of last week, increased by 0.2% to 104.76 after dropping by 0.46% the previous day, the most since July 13.
RBC’s Cole noted that the higher risk for the dollar is to the downside because a greater number of projections for core inflation are to the above consensus. “The U.S. data is the main event of the week because the Fed is so sensitive to incoming inflation data,” Cole said.
Cole continued, “An in-line number would be discouraging for the dollar and as a result we’re negative on the release itself.”
The Australian dollar last moved up slightly, reaching $0.6436, while the New Zealand dollar dropped by 0.1%, to $0.5915.
Near their one-week highs, the onshore and offshore yuan both found support and were last bought at 7.2887 and 7.3058 per dollar, respectively.
On Monday, the two had their biggest day rise versus the dollar in roughly six months.
At a time when the yuan is under increasing pressure to depreciate, Reuters reported that China’s central bank was strengthening its inspection of large dollar purchases by local enterprises.
Bitcoin increased by more than 2% to $25,849 in the cryptocurrency market after dropping below $25,000 on Monday for the first time in three months.