TOKYO, Sept 13 — The yen was pinned near a six-week low versus the dollar today as signs the United States and China were narrowing their differences over trade ahead of key talks decreased demand for safe haven assets.
That nudged the yuan up to near four-week highs against the US currency in offshore trade, while the euro held steady after swinging wildly yesterday following the European Central Bank’s surprise decision to resume government debt purchases from November to support a flagging economy.
In the very short-term, guarded optimism about a resolution to the US-China trade war should continue to push Treasury yields higher and weigh on safe-haven currencies.
However, this confidence could be short-lived as the US Federal Reserve is widely expected to cut interest rates next week while the ECB’s easing places pressure on the Bank of Japan to follow suit.
“We’ve managed to scale back our pessimism about US-China trade talks, which is a supportive factor for now,” said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.
“Once we start to focus on the Fed’s rate cut, perceptions of the market will change. Treasury yields and dollar/yen look to be too high and are likely to start drifting lower.”
The dollar rose to ¥108.265 (RM4.17), the highest since August 1.
The greenback was up 1.2 per cent versus the yen this week, on course for its best weekly performance since November 2018.
The dollar has also drawn support from a spike in US Treasury yields, with the benchmark 10-year yield at a five-week high.
US President Donald Trump said yesterday he would not rule out an interim trade pact with China.
The two sides are preparing for new rounds of talks aimed at curbing their trade war, which has dragged on for more than a year, roiling financial markets and threatening to push other economies into recession.
The yen, widely considered a safe-haven currency, tends to rise during times of heightened economic or market stress and vice versa.
China’s financial markets were closed for a public holiday today. In offshore trade, the yuan rose 0.3 per cent versus the dollar to 7.0459, the strongest since August 19.
Sterling was up 0.3 per cent on the dollar this week, on course for its second week of gains after the British Parliament moved to block a so-called no-deal exit from the European Union.
The pound remains vulnerable, however, given the continuing uncertainty over how lawmakers will decide the terms of the UK’s divorce from the EU.
The euro held steady at US$1.1068 (RM4.61), on course for its second weekly gain against the dollar.
The single currency initially tumbled yesterday after the ECB cut its deposit rate by 10 basis points to a record low of minus 0.5 per cent and said it would restart bond purchases at a rate of 20 billion euros a month from November 1.
The rate cut was widely expected, but the revived bond purchases were a surprise. Still, the euro managed to claw back losses as the ECB’s comprehensive stimulus package now shifts the spotlight to the Fed and BOJ policy meetings next week.
Financial markets have fully priced in a rate cut at the Fed’s September 17-18 policy meeting. Most economists expect additional monetary policy easing in October and December.
The Fed cut rates in July for the first time since 2008.
Trump has publicly criticised the Fed for not cutting rates more aggressively, but positive economic data has cast some doubt on the need for extensive easing.
The BOJ is also brainstorming ways to deepen negative interest rates at minimal cost to commercial banks, as it considers adopting it as a main policy response to a slowing economy, sources familiar with the bank’s thinking said.
The BOJ’s next policy decision is due September 19. — Reuters