Dollar mixed after Fed,
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[September 22, 2016]
By Patrick Graham
(Reuters) - The dollar fell to its lowest in a week against the euro but
recovered some ground against the yen on Thursday after the U.S. Federal
Reserve meeting balanced hints of a rise in interest rates this year
with cuts in the longer term outlook.
On balance the Fed's message on Wednesday did not go as far as some in
currency markets had expected towards outright promising a rise in
borrowing costs by the end of the year.
Allied to a reduction in the number of rate rises it forecasts in 2017
and 2018, that was enough to knock the greenback to a nearly 4-week low
of 100.10 yen in Asian trading. <JPY=EBS>
But there were also three votes for a rise in rates on the Fed's
policymaking committee and that helped bring the dollar back into
positive territory on Thursday, up 0.4 percent from Wednesday's close in
New York at 100.73 yen.
"The announcement constitutes a 'hawkish hold'," said Kit Juckes, a
strategist with Societe Generale in London.
The euro gained 0.4 percent to $1.1229, its highest since Friday and
taking it firmly back into the middle of a $1.09-$1.15 range it has held
since March. <EUR=EBS>
Analysts from another major French bank, BNP Paribas, also recommended
selling the yen and buying the dollar in expectation of a December rise
A stronger yen has been the most consistent trade of the past year among
major currencies, backed since January by the growing conviction that
the Bank of Japan is running out of ammunition to weaken the currency
and get inflation rising.
Wednesday's policy overhaul by Tokyo does not appear to have shifted
that conviction, although the reaction to its shift to targeting yields
on government bonds has been volatile and opinions differ widely on its
"You have some people saying that it is the end of quantitative easing
and others that it is a stepping stone towards a number of new
measures," said Richard Benson, co-head of portfolio investment at
Millennium Global in London.
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A customer checks his U.S. dollar notes in a bank in Cairo, Egypt
March 10, 2016. REUTERS/Amr Abdallah Dalsh
"If it is just the first step, the second may be too far away to start
trading right now. But you would only need one ... story about issuing
(government bonds) into the 10-year (area) to change that."
If the Bank of Japan is going to keep 10-year yields at zero percent,
then any issuance by the government of that duration would come at zero
cost, and likely be swallowed substantially by continuing central bank
buying - adding up to direct financing of the budget that has been
speculated for months.
said the market was now looking for a new story to play in the weeks ahead -
with the U.S. presidential election potentially top of the list. The first
Clinton-Trump debate is on Monday.
Officials from Japan's finance ministry, Financial Services Agency and the Bank
of Japan, also met on Thursday to discuss issues in global financial markets.
Jasslyn Yeo, global market strategist for JP Morgan Asset Management in
Singapore, believes the dollar would probably head lower against the yen going
into the year-end, and expects the greenback could soon fall below its August
low of 99.55 yen.
"Yesterday's new (BOJ) framework is not new easing. I think it more represents a
softening stance towards banks and other financial institutions likely due to
concerns and backlash over profitability and financial stability," Yeo said.
(Additional reporting by Masayuki Kitano in Singapore; Editing by Jeremy Gaunt)
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