© Reuters. A bank employee counts US dollar bills at a Kasikornbank in Bangkok, Thailand, January 26, 2023. REUTERS/Athit Perawongmetha/File Photo
By Harry Robertson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – The yen rose against the dollar for a fourth straight session on Tuesday, as investors positioned themselves for the possibility of the Bank of Japan tightening monetary policy next year while the U.S. Federal Reserve eases it. .
Also weighing on the dollar and boosting the yen was a rally in the Chinese yuan, which hit a nearly four-month high.
The dollar hit its lowest level since mid-September at 147.16 yen and was last down 0.53% at 147.6 yen.
More broadly, the , a gauge of the dollar against six other currencies, fell to its lowest level since late August at 103.17 and last weakened 0.13% at 103.32.
“There has been a lot of excitement, momentum building, about the Bank of Japan’s ability to exit its ultra-loose monetary policy…possibly next year, ending negative interest rates,” said Jane Foley, chief strategist. would change. at Rabobank.
Foley said a sharp decline in the dollar was also encouraging investors to unwind some of their bets against the yen. “The dollar is weaker, and I think this is just the catalyst for the market to make bets on how far the dollar and yen can actually move,” he said.
The Chinese yuan hit a nearly four-month high of 7.13 per dollar and was last trading at 7.138.
The People’s Bank of China set the midpoint of the yuan’s trading band at its highest level since Aug. 7.
“We believe the sizeable rally in the yen is the main driver of the stronger yen this week as it is boosting (Asian) currencies as a whole,” said Simon Harvey, head of currency research at Monex Europe.
The euro rose to its highest level since mid-August at $1.0966 on Tuesday and was last up slightly at $1.0944.
Sterling rose 0.26% to $1.2538, after hitting a two-month high of $1.2554. Bank of England Governor Andrew Bailey said on Monday it was “too early to think about rate cuts” in Britain.
US Treasury yields have fallen as investors have bet that the Federal Reserve will cut interest rates next year, after a slowdown in US inflation in October.
This has dragged the dollar index down from a near one-year high in early October, when US economic data consistently beat expectations.
It was on track to fall for the fourth consecutive session on Tuesday to 4.39%, after falling on Monday in the wake of a strong 20-year bond auction. In October it hit a 16-year high above 5%.
Elisabet Kopelman, US economist at lender SEB, said: “Strong risk appetite and speculation about future interest rate cuts are not a good environment for the dollar.”
The minutes of the latest Federal Reserve meeting will be published at 19:00 GMT and will make headlines the following day, along with a speech by European Central Bank President Christine Lagarde.
Some analysts warn that the dollar’s bearish momentum may not have far to go. “There is a risk that we will receive criticism about the pace of Fed easing,” Foley said.
