Dollar pushes higher ahead of pivotal Fed meeting
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[March 20, 2024] By
Marc Jones
LONDON (Reuters) - The dollar rose for a fifth straight session on
Wednesday, while stock and bond markets trod water as traders braced for
what could be a crucial Federal Reserve meeting later in the day.
Japan's yen was at a 4-month low after the BOJ finally ditched sub-zero
rates, but the focus was on whether the Fed signals that it now expects
to cut U.S. rates twice this year rather than the three that markets
have been hoping for.
The greenback was standing almost 0.5% higher on the day in Europe,
where the pound dipped after soft UK inflation data and luxury goods
stocks tumbled after a hefty profit warning from Gucci maker Kering.
[.EU]
Bond markets were awaiting the Fed, with U.S. 10-year Treasury yields,
which tend to drive the global cost of borrowing, off recent highs while
Gilt yields were also on the slide after the UK inflation numbers.
"The market is completely indecisive on the number of Fed rate cuts,"
said Mathieu Savary, Chief European Strategist at BCA Research,
describing it as "a complete coin toss" between two and three at the
moment.
The yen's fall also showed how markets almost always buy the rumor and
sell the fact.
"Really that (BOJ move away from negative rates) should have lifted the
yen, but instead it has fallen over 1.5% (over the last couple of days)
because people expected the step," he said.
The dollar was up 0.6% on the day to 151.70 yen, a fresh four-month
high, and close to the 152 level that prompted Japanese authorities to
intervene in FX markets in late 2022.
While Japan's historic shift away from negative interest rates and
massive stimulus ushered in a new era of economic policy, analysts
expect the BOJ's monetary normalization to proceed at a glacial pace.
That has meant an extended lifespan for the popular carry trades where
investors borrow yen to buy higher yielding currencies.
"It is clear that the BOJ tightening has done nothing to shake a belief
in carry," said Alan Ruskin, global head of G10 FX strategy at Deutsche
Bank.
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The German share price index DAX graph is pictured at the stock
exchange in Frankfurt, Germany, March 15, 2024. REUTERS/Staff/File
Photo
FED AHEAD
Tokyo's Nikkei had been closed for a holiday in Japan, but the yen's
weakness lifted futures 0.4% higher.
MSCI's broadest index of Asia-Pacific shares outside Japan finished
flat. Taiwanese shares fell 0.4% while South Korean shares jumped
1.3%, driven by a 5.6% surge in Samsung Electronics after Nvidia
said it was qualifying the South Korean chipmaker's high bandwidth
memory (HBM) chips.
Chinese shares edged higher too after the central bank there left
benchmark lending rates unchanged, as widely expected. The Shanghai
Composite index gained 0.5%, while Hong Kong's Hang Seng index crept
up 0.2%.
For the Fed, focus is on the risk that its the new economic
projections - the fabled dot plot - signals just two interest rate
cuts, down from three, or a later start to the cutting cycle than
June.
A slew of European Central Bank officials including its President
Christine Lagarde will be also speaking later. Top rate setters have
endorsed June as the likely month to start its cuts, and some would
like as many as four this year.
Although the euro was down against the dollar on the day, at 164.66
yen it was at its strongest against the Japanese currency since
2008. The Aussie dollar fetched 98.90 yen, just a notch below a
nine-year high too.
Oil prices retreated from multi-month highs however due to the
strong dollar. Brent eased 0.7% to $86.80 a barrel, while gold
prices also ticked down to $2,154 per ounce, some distance away from
this month's record high of $2,194.99.
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(Reporting by Marc Jones; Editing by Alexander Smith)
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