The U.S. dollar is on track for its third consecutive monthly gain, buoyed by robust U.S. economic growth figures that suggest interest rates may remain high for an extended period. Meanwhile, the Japanese yen hovers around the 150 level as market participants await the Bank of Japan’s (BOJ) policy meeting next week.
The U.S. economy displayed its fastest growth in nearly two years during the third quarter, primarily driven by higher wages resulting from a tight labor market, which, in turn, boosted consumer spending. This impressive economic performance, coupled with strong business activity surveys earlier in the week, has reinforced expectations that the Federal Reserve will maintain its tight monetary policy for an extended duration. Consequently, the U.S. dollar has appreciated broadly this week, with the U.S. dollar index poised for a weekly gain of approximately 0.35%.
City Index strategist Fiona Cincotta commented on the notable divergence between the U.S. and other economies, particularly in comparison to the eurozone and the UK. She highlighted the recent release of strong Purchasing Managers’ Index (PMI) data, robust third-quarter GDP growth, and resilient consumer spending as factors contributing to the U.S. economic exceptionalism.
In contrast, the euro has struggled to gain momentum and is set for a weekly loss of 0.25%. The European Central Bank (ECB) recently opted to keep interest rates unchanged, breaking a streak of ten consecutive rate hikes. With deteriorating macroeconomic conditions, as evidenced by October’s disappointing PMIs, some analysts anticipate that the ECB may be compelled to lower interest rates in the coming year.
The sterling has also faced challenges, slipping to $1.2117, just above its three-week low of $1.2070 recorded on Thursday. Market sentiment remains cautious after a downbeat session on Wall Street, resulting in significant stock market declines and a preference for U.S. Treasuries, pushing yields lower.
The Australian dollar, often viewed as a risk-appetite proxy, exhibited a 0.4% increase to $0.635 after hitting a one-year low of $0.6271 on Thursday.
The Japanese yen continues to fluctuate around the 150 level against the U.S. dollar, a threshold that some observers consider a potential trigger for intervention by Japanese authorities. While the yen saw a modest gain, reaching around 150.10 per dollar, it remained just above Thursday’s one-year low of 150.78. Finance Minister Shunichi Suzuki emphasized Japan’s commitment to respond to currency market developments with urgency, setting the stage for potential intervention if needed.
All eyes are now on the upcoming BOJ meeting, with growing speculation that the central bank might revise its policy on bond-yield control. One possibility under consideration is an adjustment to the existing limit on yields, which was established only three months ago. Market analysts suggest that the extent of the yen’s movement in the interim could influence the BOJ’s decision regarding this policy adjustment.
In summary, the U.S. dollar continues to strengthen, supported by robust economic performance, while the Japanese yen faces uncertainty as it teeters around the 150 level ahead of the BOJ’s policy meeting. These developments underscore the divergent paths of major economies and their respective currencies.
Source: [Reuters]
