YEN HOLDS NEAR MULTI-WEEK LOW AS KURODA CONTINUES STIMULUS
The Japanese yen held near multi-week lows against the dollar Wednesday after Bank of Japan (BOJ) Governor Haruhiko Kuroda stressed that maintaining ultra-loose monetary policy is appropriate given the current economic reality.
“Our economy is on firmer footing, but we are still distant from our 2 percent inflation target,” Kuroda said in a speech that was picked up by various news outlets. “It is appropriate to keep monetary conditions easy with our current market operations framework.”
The BOJ has kept its monetary policy on hold since last September when it adopted yield-curve targeting. Interest rates have been maintained at -0.1% since the start of 2016. Though improving, the Japanese economy remains well below the central bank’s inflation and GDP targets.
In economic data, Japan’s All Industry Activity Index strengthened 2.1% in April after falling 0.7% the previous month, the Ministry of Economy, Trade and Industry reported Wednesday.
In other news, the United Kingdom’s public sector net borrowing increased less than expected last month, data from the Office for National Statistics showed. Public sector net borrowing climbed £5.993 billion in May following a gain of £8.675 billion the month before.
The British pound rebounded sharply on Wednesday after sinking in the previous two sessions. Sterling was back to trading near 1.2700 ahead of the North American session.
The US dollar was trading lower against a basket of world currencies Wednesday. The dollar index slipped 0.2% to 97.60. It had traded at more than one-month highs on Tuesday.
The greenback is gaining momentum on the yen, having crossed the 23.6% and 38.2% Fibonacci retracements over the past week. Prices are back below the 50% level but appear poised to continue higher. Much of the gains can be attributed to broad dollar gains since last week’s FOMC decision. Growing risk appetite in the financial markets has also lessened the appeal of the yen, which is widely regarded as a global safe haven currency.
The euro traded within a narrow range against the dollar Wednesday, as calm returned to the market after a volatile week. Th EUR/USD bounced around between 1.1130 and 1.1160 through the European session before settling in the middle of that range. Short positions continue to dominate the pair, a sign that bearish pressures are set to continue. The common currency has been on the backfoot since failing to extend yearly highs.
The British pound rebounded sharply from two-month lows, gaining half a percent against the dollar to trade near session highs. The GBP/USD exchange rate had declined sharply in recent days as the United Kingdom and Europe embarked on Brexit negotiations. Cable has been under pressure since the 8 June election, where Prime Minister Theresa May’s botched attempt at boosting her party’s majority weighed on sterling. The pound’s outlook is highly uncertain now that Brexit talks have formally begun.