By Karen Brettell and Harry Robertson

NEW YORK/LONDON (Reuters) – The yen dropped to its lowest level since 1990 on Wednesday before rebounding slightly after Japan’s top monetary officials met to discuss the rapidly weakening currency and suggested they were ready to intervene.

The dollar briefly rose to 151.975 yen, its strongest against the yen since mid-1990, and was last down 0.19% at 151.29.

The Bank of Japan, the Finance Ministry and Japan’s Financial Services Agency held a meeting late in Tokyo trading hours, after which top currency diplomat Masato Kanda said he “won’t rule out any steps to respond to disorderly FX moves”.

Japanese authorities stepped in to defend the yen at 151.94 in 2022 and finance minister Shunichi Suzuki on Wednesday used the same words that preceded that intervention, warning Japan would take “decisive steps” against excessive currency moves.

“They are swimming against the current here, to an extent. Intervention helps in the near term, but it’s not a long term solution,” said Bipan Rai, North American head of fx strategy at CIBC Capital Markets in Toronto.

The yen has slumped more than 7% this year, driven by the widening gap between U.S. and Japanese bond yields, which the Bank of Japan’s small interest rate hike last week did little to change.

The U.S. Federal Reserve beginning an interest rate cutting cycle and a decline in government bond yields outside of Japan may now be key to stemming the drop in the Japanese currency.

“I suspect that intervention, or threats to conduct intervention, are really just a measure of buying time until we start to see things shift on a more sustained basis outside the country,” Rai said.

KING DOLLAR

The dollar is on course for solid quarterly gains after investors pared back their expectations for big interest rate cuts in the face of strong economic data and reticence from central bankers.

Guy Miller, chief market strategist at Zurich Insurance group, said that other currencies were suffering under the weight of a strong U.S. currency.

“The US economy has done much better than most had expected, particularly compared to other parts of the world,” Miller said.

The gained 0.11% at 104.40, and is up around 3% so far in 2024.

The market’s main focus this week is on U.S. core inflation figures due on Good Friday, though already a bigger-than-expected jump in U.S. durable goods orders on Tuesday boosted the dollar somewhat, weighing further on the yen.

The euro fell 0.15% to $1.0814. Sterling weakened 0.07% to $1.262.

The dollar strengthened against Sweden’s crown after the Swedish central bank held interest rates and hinted at rate cuts in the coming months. It was last up 0.33% at 10.62 crowns.

The Swiss franc fell to its lowest since early November on Wednesday at 0.9071 to the dollar. The Swiss currency is still reeling from a surprise rate cut in Switzerland last week, and is down around 7% this year.

In cryptocurrencies, bitcoin fell 1.15% to $68,987.91.

Market Adjustments and Federal Reserve’s Role

Investors who previously bet against the USD are revising their positions, contributing to the dollar’s recent strength. While the dollar index benefits from weaker foreign currencies, it’s also limited by lower Treasury yields. Market participants are closely monitoring data and Federal Reserve officials’ statements to gauge the economic outlook amidst uncertainty over the frequency of Fed rate cuts. Some Fed policymakers believe the number of rate cuts this year could be fewer than expected.

Key Data and Global Perspective

Important data includes durable goods orders and consumer confidence reports, with a particular focus on Friday’s personal consumption expenditures price index and personal income and spending figures. However, markets will be closed for Good Friday, delaying the market’s response to this data.

Japanese Yen in a Tight Spot

The yen has fallen to its lowest since 1990, nearing the level that prompted Japanese authorities to intervene in 2022. Japan’s finance minister has warned of decisive action against extreme currency fluctuations. The yen’s weakness is largely due to the disparity between U.S. and Japanese bond yields.

Euro and Other Currencies

The euro remained steady following Spanish inflation data, while the Swedish crown weakened slightly against the dollar after the Swedish central bank’s decision. The Swiss franc is trading near its lowest since last November, affected by a surprise rate cut in Switzerland.

Market Forecast

The outlook for the U.S. dollar remains bullish in the short term. The strong economic indicators in the U.S., coupled with the cautious stance of the Federal Reserve and market adjustments, suggest continued strength for the dollar against a backdrop of global currency pressures. The yen, in particular, is under watch for potential intervention.

Technical Analysis

Property Markets and Interest Rates

Adjustments to higher interest rates are causing significant shifts globally. The UK property market, alongside international counterparts, particularly in China, is experiencing declining values, raising concerns about broader financial impacts. UK banks, however, are deemed robust enough to withstand these direct effects, though broader investor confidence remains sensitive to global banking sector stresses.

Asset Price Volatility

The FPC notes an increase in asset price risks, driven by optimistic investor expectations of economic recovery and falling inflation. This optimism has inflated asset prices, such as stocks and bonds, to levels high above historical norms, creating a substantial risk of a sharp market correction that could hinder borrowing capabilities across the UK.

Challenges in Non-Bank Finance

Higher interest rates have also impacted non-bank financial sectors like private equity, a crucial funding source for UK businesses. While UK households demonstrate resilience against these rising rates, pressures from increased living costs and mortgage payments are noteworthy.

Banking Sector Strength and Credit Risks

UK banks, with their strong capital buffers, are well-equipped to support the economy, even under worse-than-expected conditions. The maintained CCyB rate reflects a balance between mitigating potential banking losses and ensuring credit availability, especially for higher-risk households and businesses.

Operational Resilience Priority

The FPC underscores the growing importance of operational resilience in the increasingly digital and interconnected financial sector. Ensuring system-wide stability, beyond individual firm risks, is paramount, with a focus on cyber resilience and regulated third-party services.

Short-term Market Forecast: Cautioned Dovish Outlook

In light of the Bank of England FPC Meeting Minutes, the market outlook leans towards a cautious dovish stance. The combination of global uncertainties, the potential for asset price corrections, and the challenges posed by higher interest rates indicate a period of heightened vigilance and potential market adjustments in the near term.

One of the creators of the most popular meme cryptocurrency Dogecoin, Billy Markus, known in the crypto community under the pseudonym Shibetoshi Nakamoto, has denied a connection to recently emerged meme token BOBA. After the follower reached out to Markus, asking why BOBA only has a market capitalization of $100,000, the DOGE founder stated that he literally had nothing to do with the crypto asset.

BOBA, a recent addition to the meme token craze, has garnered attention for its connection to the world of Solana blockchain. However, despite speculation linking Markus to this new venture, he made it abundantly clear that he has no involvement whatsoever with BOBA. 

When probed about potentially joining the token’s community or contributing to its development, Markus firmly declined.

This denial is not the first time Markus has had to refute claims of involvement in alternative cryptocurrencies. Notably, he distanced himself from SHEB, a token associated with the Shiba Inu meme, and reaffirmed his detachment from any crypto projects apart from Dogecoin. 

Even when confronted with rumors of his involvement in the revival of the BELLS token, Markus reiterated his disinterest in devoting his efforts to any other crypto ventures.

Amid the speculation surrounding BOBA, little information is available regarding its origins or purpose. The token, which surfaced on the Solana blockchain in late February, has experienced a significant downturn in its value, plummeting by a staggering 91% since its inception. Despite its mysterious emergence, BOBA seems to have failed to capture significant attention within the crypto community.

Headlines:

Markets:

• JPY leads, CHF lags on the day
• European equities higher; S&P 500 futures up 0.4%
• US 10-year yields down 1 bps to 4.223%
• Gold up 0.8% to $2,196.53
• WTI Crude down 0.6% to $81.13
• Bitcoin up 0.4% to $70,087

The main focus on the session was the Japanese yen, as it fell early on in Asia to its lowest since 1990 against the dollar.

USD/JPY touched a high of 151.97 before backing off slightly to around 151.60-70 levels as we got into European trading. Then, came a barrage of comments from Japanese officials but it did little to move the needle.

Japan top currency diplomat Kanda then came out to say that a meeting between the MOF, FSA, and BOJ was not needed yet. But as the verbal intervention lacked effectiveness, they had to resort to that as a meeting was called with less than 15 minutes warning.

That saw the yen gain some ground with USD/JPY falling from 151.70 to 151.15 initially. Kanda’s remarks were as you’d expect, just added jawboning and that saw USD/JPY bounce back to 151.40. But as the dust settles and the potential for Tokyo to act going into the Easter break later this week, we are seeing USD/JPY bulls favour caution as the pair now falls to 151.05 on the day.

Outside of that, the major currencies space was quite a bore. The dollar traded more steadily across the board with light changes to note. That makes the yen the only notable mover, with CHF/JPY also falling to its lowest levels for the year amid a “divergence” in policy stance.

In other markets, equities are looking to bounce back after the late setback in Wall Street yesterday. European indices are higher again alongside US futures during the session. Meanwhile, gold is once again looking poised after a rejection at $2,200 yesterday. Is it third time the charm for the precious metal in March trading?

The Japanese yen continues to have a quiet week. In the North American session, USD/JPY is trading at 151.36, down 0.03%.

BoJ core inflation eases to 2.3%

Bank of Japan core inflation fell to 2.3% in February, down from 2.6% in January and shy of the market estimate of 2.5%. The release further complicates the inflation picture in Japan, as we continue to see inflation indicators heading in all directions. The BoJ core inflation index eased in February ,while the services producer price index climbed 2.1%, unchanged from January.

The BoJ made a massive pivot last week as it raised interest rates for the first time in 17 years. The central bank is counting on rising service inflation replacing cost-push inflation as the main driver of inflation, which it expects will make inflation sustainable around the 2% target.

The shift in monetary policy has not translated into a win for the yen, which is above the 151 line. There is the threat of currency intervention, as Tokyo intervened last September and October when USD/JPY rose above 152. Japanese officials are trying to jawbone the yen higher before resorting to intervention, with Japan’s top currency diplomat sending a warning on Monday to speculators from trying to sell of the yen, saying the currency’s recent slide did not reflect fundamentals.

In the US, it was a mixed day. Durable goods recovered in February with a gain of 1.4% m/m in February. This followed a 6.9% slide in January and beat the market estimate of 1.1%. The Conference Board consumer confidence index was almost unchanged at 104.7 in February, compared to 104.8 a month earlier. This was shy of the market estimate of 107.

USD/JPY Technical

USD/JPY tested support earlier at 151.35. Below, there is support at 151.13
151.64 and 151.86 are the next resistance lines

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This price review for the week ahead looks at USOIL and XAUUSD, where economic data coming up later this week are the main market drivers for the near short-term outlook.

The most important economic data for this week are:

Thursday:

• US quarterly GDP growth rate on Thursday at 12:30pm GMT. Market participants are expecting the figure to come out at 3.2%, down from 4.9% in the previous quarter. This data might have already been priced in as it’s for the previous quarter, though any significant change might spark volatility in the majority of the pairs traded against the dollar.

Friday: 

• US core PCE price index for February is expected to decrease to 0.3% against the previous 0.4%. If these figures are broadly accurate, then it might create some pressure for the dollar. However, in the event of a higher PCE reading, the dollar might experience a minor boost. 

Sunday: 

• NBS manufacturing PMI at 1:30am GMT, where the expectations are for a slight increase, reaching 49.9 points. The NBS is larger than the Caixin (to be released next week) and is focusing more on larger state-owned firms. If the expectations are correct, then it would mean that the state-owned firms might be performing slightly better but have yet to reach the 50-point level. This indicates that the manufacturing sector of the NBS survey might still be shrinking and probably might have some effect on production-related instruments such as oil, natural gas, silver, etc. 

USOIL, daily

Oil prices remained steady as investors assessed the impact of Russian refinery disruptions and a slightly weaker US dollar. Recent Ukrainian attacks on Russian refineries and production cuts in Russia have created mixed effects on crude prices, with potential implications for global oil exports. Geopolitical tensions in the Middle East have contributed to rising geopolitical premiums, further impacting oil prices.

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On the technical side, the price is trading in a somewhat steady bullish trend and has currently reacted on the support area of the 50% of the weekly Fibonacci retracement level. The 50-day moving average is trading well above the 100-day moving average, validating the overall bullish momentum in the market for crude oil. Also, the Stochastic oscillator is trading near the extreme overbought levels, hinting that a correction to the downside might be seen in the coming sessions. This correction might happen after a retest of the previous high of around the $82.50 price area, and then possibly retest the support of $80.50 once again.

Overall, as long as the price does not break below the bullish trendline (blue line), the outlook for the short term will also be bullish.

Gold-dollar, daily

Gold prices rose due to a weaker dollar and anticipation of US inflation data, with expectations of new record highs by the end of the year. Traders are pricing in a 64% probability of the Fed cutting rates in June, according to the FedWatch Tool, with strong support for gold prices from Chinese household demand and central bank purchases. Also, if we look at the commitment of traders report, we will see that the number of commercial traders is still declining, hinting that the price of gold might decline in the near short term.

From a technical point of view, the price has found sufficient support on the 20-day moving average and has since corrected to the upside. On the other hand, the all-time high of mid-March, in combination with the upper band of the Bollinger bands, is a strong resistance to the price, which could potentially push the price down in the coming sessions. If this scenario plays out, then the first area of possible support might be found around $2,150, which is the psychological support of the round number, the 23.6% of the daily Fibonacci retracement level, as well as the area of price reaction in mid-March.

This article was submitted by Antreas Themistokleous, an Exness analyst.

Disclaimer: The opinions in this article are personal to the writer and do not reflect those of Exness or LeapRate.