FX market outlook

FX market outlook

Posted on Friday, June 16 2017 at 8:17 am GMT+0000

Yen softer after BoJ makes no change to monetary policy or economic outlook; dollar holds onto post-FOMC gains.

The yen weakened after the Bank of Japan (BoJ) left monetary policy unchanged while the US dollar remained firm after the Federal Reserve raised interest rates.

The BoJ announced its decision to maintain its current monetary policy without making any tweaks, as was widely expected, since inflation in Japan is still very subdued. The main rate was kept at -0.1% and there was no change to its asset purchase program or yield curve control. Its economic assessment was maintained and some investors were disappointed as they were looking to see if there was any upgrade to the outlook.

The dollar rose to a fresh 2-week high of 111.37 yen while the euro jumped to a 1-week high of 124.21 yen after the BoJ announcement. The yen slid even further as BoJ Governor Haruhiko Kuroda spoke during a press conference and mentioned that talk of exiting stimulus was still premature since inflation was far from the BoJ’s 2% target and inflation expectations haven’t started rising yet.

The greenback was already firm due to the Fed rate hike on Wednesday. With a diverging monetary policy between the US and Japan’s central banks, the yen is expected to weaken against the dollar. Meanwhile, the release of encouraging US data yesterday on jobless claims and on manufacturing activity in the New York and Philadelphia regions also helped support the dollar. The dollar index, which measures the greenback against a basket of peers, hit a high of 97.56, a more than 2-week high.

The euro is on track to end the week with losses against the dollar. Despite a brief spike to come close to the key $1.1300 level on Wednesday, the single currency fell below the $1.1200 level yesterday on a firmer greenback that was lifted after the FOMC meeting. The euro traded around $1.1145 during today’s Asian session.

The pound was steady around $1.2765, close to the highs reached after rallying following the Bank of England meeting that showed the BoE was closer to hiking rates.

Crude prices held onto losses in Asia trade after edging lower on Thursday. West Texas Intermediate (WTI) oil prices consolidated around yesterday’s low of $44.22 a barrel.

Spot gold touched as low as $1,251.05 per ounce and is on track to end the week with losses, as a broadly post-FOMC dollar is weighing on the precious metal.