The Japanese yen skyrocketed to a one-month high on Tuesday. On the other hand, the U.S. dollar traded below recent peaks today as investors awaited inflation figures due in the U.S. and China. They hope to gain the interest rate outlook for hints about the forex markets’ course.
Analysts expect the data due on Wednesday to show U.S. consumer prices jumped and Chinese factory gate prices rallied in October. However, commodity prices have lowered from recent peaks. Central bankers seem content to leave interest rates at the current levels for now. Even though the rise will likely occur in the near future.
The stronger yen, which surged forward by almost 0.4% to 112.80 per greenback, along with the plunge in 20-year and 30-year U.S. Treasury yields to seven-week lows, suggested traders are pricing in a modest hiking cycle. The economic growth will likely slow in the longer term, as well.
On Tuesday, the euro, which had tumbled down to a 15-month low of $1.15135 last week, managed to gain 0.2% to $1.1606. On the other hand, the U.S. dollar index shaved off 0.2% to 93.878, trading in the middle of the range it kept through October.
Fed funds futures decided to push back the new date for rates lift-off from around July 2022 to September or October. According to analysts at Standard Chartered, the Fed may prefer to increase rates slowly after making its first hike in the 3Q of 2022. Strategists Steve Englander and John Davies noted that they expect the agency to emphasize the fact that the American economy is approaching inflation and maximum employment targets instead of expressing concern about elevated inflation. The Fed will probably choose to raise rates gradually rather than make an abrupt move.
How did the British Pound fare?
The sterling plummeted down last week in the wake of the BoE surprise. However, the currency rebounded, and it traded at $1.3580 at last after plunging as low as $1.3425 on Friday.
Last week, the Bank of England announced that it would hold rates. Meanwhile, the Federal Reserve and the Reserve Bank of Australia stated that they plan to hike rates aggressively, dampening market expectations. As a result, the kiwi dollar soared on Monday. It steadied around $0.7164 on Tuesday. But it gained support from investors wary of the possibility that New Zealand’s central bank might raise rates by as much as 50 basis points later in November.
ANZ analysts noted that if the bank is of a mind to hike by 50bps, now’s the time. Still, that seems incongruous with the cautious tone of other central banks and uncertain global backdrop. But markets will price in the risk until they know the outcome.
On Tuesday, the risk-sensitive Aussie dollar managed to hold onto most of its gains made overnight. It exchanged hands at $0.7422 at last.
Several central bankers are due to speak later on Tuesday. The speakers include Fed Chair Jerome Powell and European Central Bank President Christine Lagarde. Investors are waiting for these meetings.
What about the Turkish Lira?
On Tuesday, Turkey’s central bank announced that it had lowered the upper limit for holding standard gold for lira reserve requirements to 10% from the previous 15% and raised the reserve requirement ratios for forex deposits by 200 basis points.
The bank also added that it would gradually decrease the upper limit for holding standard gold for lira without giving a timeframe. According to it, the latest amendments to required reserves aim to raise lira-denominated required reserves by approximately 7.4 billion lira, while foreign currency required reserves will increase by roughly $3.8 billion.
The central bank’s main objective is price stability. So, it revised the reserve requirement regulation, trying to improve the effectiveness of the monetary transmission mechanism. The latest reports say these changes will be effective starting on November 12.
The central bank decided to slash its policy rate by 200 basis points to 16% last month. This was despite annual inflation reaching almost 20%. That decision pushed the Turkish currency to record lows and brought the cuts since September to 300 basis points.
On Tuesday, the lira plummeted down by 0.3% at 9.7040 against the greenback. Overall, it has declined by some 23% against the U.S. currency this year.