Japanese Yen declined slightly on Wednesday. What about USD?
The Yen dropped insignificantly today after skyrocketing by almost 4% in the previous session. The Bank of Japan changed its key policy unexpectedly. On Tuesday, the BOJ announced that it would change its existing yield curve control policy. However, the bank kept broad policy settings the same.
Consequently, the Yen rallied to the four-month peak of 130.58 on Tuesday. But today, the currency shaved off 0.13%, exchanging hands at 131.88 per greenback. Still, it remained near yesterday’s high, when the currency gained 3.8%, showing its biggest one-day surge since 1998.
The BOJ enabled 10-year yields to move 50 basis points on either side of its 0% target. That range is much wider than the 25-basis point band permitted previously. Derek Halpenny, the head of research at Japanese bank MUFG, noted that the Yen’s rally indicated that investors expect the central bank to further tighten monetary policy in the following meetings. He also added that this is probably the first step in a normalization process.
Meanwhile, the U.S. dollar index climbed up by 0.22% against the basket of six major currencies on Wednesday, trading at 104.22. The greenback is approximately 8% higher for the year. It rallied most of 2022, mainly thanks to the U.S. Federal Reserve raising interest rates aggressively. Such a policy attracted investors toward the U.S.’ fixed income assets.
However, the index has plunged by almost 9% since skyrocketing to a 20-year peak in September. The currency experienced a sharp decline as the possibility of the Fed ending its tightening cycle weighed on traders.
According to analysts, the dollar might decrease further next year, especially if inflation weakens and the central bank’s rate hikes end.
How are the Euro and Sterling faring?
In Europe, the common currency tumbled by 0.16% versus the dollar at $1.061 on Wednesday. The British Pound also dropped by 0.68% to $1.211. Goldman Sachs thinks the euro will continue falling in the first three months of 2023, plunging to $1.02. However, the currency might soar to $1.10 in twelve months’ time.
