By Rae V
SINGAPORE (Reuters) – The yen was on track for its best week against the dollar in four months on Friday as the U.S.-Japan rate gap is likely to narrow, amid conditions that the Federal Reserve will raise rates, boosting the greenback. There will be decline on the way. Weekly loss.
As weaker-than-expected US economic data released this week boosted market expectations that the Fed has reached the end of its aggressive monetary tightening cycle, with a slowdown in inflation now turning the focus to when the first rate cut might occur. Have to start.
Market pricing suggests there is only a 0.3% chance of another rate hike in December, compared with about a 15% chance a week ago, with a 35% chance that the US central bank will ease monetary conditions as early as next March. could start, according to the CME FedWatch tool.
That led to a fall in US Treasury yields as well as a slide in the dollar, which was on track to lose about 0.6% on the yen for the week, its worst weekly performance since July.
Against the greenback, the euro and sterling were also expected to post weekly gains of more than 1.5%, while the dollar index was on track to lose 1.3%.
The euro remained steady at $1.0851, while sterling was last bought at $1.2412.
“The market’s reaction to the (US) CPI was very significant, as the decline in inflation was quite modest, and that’s a bad sign for the dollar going forward,” said Sean Callow, a senior currency strategist at Westpac.
“This could set up a narrative whereby the market will start talking about the FOMC statement in December as not only holding rates on hold but … they may move to a more neutral stance.”
Separate data released this week showed US retail sales declined for the first time in seven months in October, while signs of a cooling in the US labor market continued as Americans filed new claims for unemployment benefits. The number has reached the highest level in the last three months. Week.
The Japanese yen was last at 150.72 per dollar, which remains on the weak side of the 150 range and not far from Monday’s one-year low of 151.92 per dollar.
Despite a potential peak in US rates and insiders believing the Bank of Japan (BOJ) is boosting markets to end negative interest rates, the wide gap between Japan’s ultra-low rates and those in the United States The yen continues to maintain. Under pressure.
“I think (the BOJ) is still going to err on the side of caution. It’s our view in our house that they don’t touch policy settings for several months, until next year,” Callow said.
“If that’s the case, then yes, the US dollar will probably have lower yield appeal, but we don’t think it’s enough to really change the situation – the gap is still too big.”
Elsewhere, the Australian and New Zealand dollars were also eyeing weekly gains of 1.7% and 1.3% respectively, helped by a slide in the greenback.
The Aussie was last down 0.08% at $0.6466, showing little reaction to upbeat Australian jobs data released in the previous session.
The kiwi fell 0.14% to $0.5963.
(Reporting by Rae V. Editing by Sam Holmes)