Written by Brigid Riley and Alan John
TOKYO/LONDON (Reuters) – The yen hit multi-year lows against the dollar and euro on Tuesday, with investors increasingly monitoring intervention ahead of this week's Bank of Japan meeting, while dovish policy Officials say the left pound is at its weakest level. In a few months.
The euro rose broadly, hitting 165.62 yen, its highest level since 2008, after better-than-expected business activity data from France and Germany.
“This is driven by today's strong euro, encouraging signs that services data is returning to expansionary territory, headwinds to consumer spending growth continue to abate, and expectations that the Bank of Japan will improve policy, leading to a weaker yen. „It's a combination of the continued „tightening policy being very gradual,'' said Lee Hardman, senior currency strategist at MUFG.
The dollar rose to 154.87 yen, its highest level since 1990, moving closer to 155 yen, which many participants believe will trigger new intervention by Japanese authorities.
Japan's Finance Minister Shunichi Suzuki said last week's talks with his U.S. and South Korean counterparts had laid the foundations for Japan to act against excessive yen movements, making his strongest call yet on possible intervention. It was a warning.
However, there are doubts whether the Japanese government will act so soon at the two-day Bank of Japan policy meeting that begins Thursday.
Japan's central bank expects inflation to remain near its 2% target for the next three years in new forecasts released on Friday, and is prepared to raise interest rates cautiously again this year from their current near-zero levels. It suggests something.
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„We've been on the jaw for a few weeks now, and they haven't stepped in and intervened directly in the currency market yet, so people are wondering what brings them to the table,“ Hardman said. I'm holding you,'' he said.
After falling earlier in the month, the euro held firm and rose against the beleaguered yen as well as the dollar, rising 0.2% to $1.06753.
Following the German PMI data, the pound rose 0.16% against the pound to 86.39 pence, temporarily matching the previous day's four-month high of 86.43 pence.
Investors are betting that the Bank of England will cut interest rates in the summer after policy makers said inflation was slowing towards its 2% target and was likely to stay there. I am becoming more confident in this.
Sterling was supported at the start of the year by expectations that the Bank of England would cut interest rates significantly later than the European Central Bank, and markets now expect a rate cut to occur in June.
Meanwhile, markets see the US Federal Reserve as one of the last major central banks to cut interest rates, with the paper currently pricing in a 46% chance that the Fed will begin its first rate cut in September. And November is not far off at 42%. CME FedWatch Tool.
That's a sharp contrast to just a few weeks ago, when markets were expecting the start of a U.S. monetary easing cycle in June, a shift that triggered dollar strength around the world.
The pound fell to a five-month low of $1.2299 against the dollar on Monday, but ended up rising slightly to $1.2360.
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Investors will continue to watch the strength of the U.S. economy this week as first-quarter gross domestic product (GDP) data is released on Thursday and the personal consumption prices and expenditures (PCE) index, the Fed's preferred inflation measure, is released on Friday. This is an opportunity to evaluate the quality.
„If this week's GDP and PCE results heighten concerns about a stall in disinflation, the market could further delay the anticipated first interest rate cut from September,“ he said. and the US dollar is rising.“ Carol Kong, Currency Strategist at Commonwealth Bank of Australia (OTC:).
According to a Reuters survey, the market forecast for March's overall PCE figure is unchanged at 0.3% compared to the previous month, and up 2.6% year-on-year (up from 2.5% in February).