The dollar is mostly higher as the yen tumbles after dovish rate hike.
The U.S. dollar is mostly higher as North American traders enter for the day. The Australian dollar is the lone major currency trading higher against the greenback, while the Japanese yen is by far the weakest.
The dollar changes against the major currencies at 7:45 AM ET show:
- EUR: USD higher by 0.01%
- JPY: USD higher by 1.21%
- GBP: USD higher by 0.08%
- CHF: USD higher by 0.12%
- CAD: USD higher by 0.17%
- AUD: USD lower by 0.18%
- NZD: USD higher by 0.40%
The largest move is in USDJPY, which has surged toward the 158.00 area following the Bank of Japan’s rate decision.
BOJ raises rates, but the guidance disappoints yen buyers
The Bank of Japan raised its policy rate by 25 basis points to 1.25%, its highest level since 1995. On the surface, that is a hawkish move. However, the increase was widely expected, meaning the market was more interested in what the BOJ would say about the path forward.
Governor Kazuo Ueda did not give yen buyers the clear signal they wanted. Future decisions remain dependent on inflation and economic developments, and he stopped short of indicating that another increase was likely at the next meeting.
The 7–2 vote also showed some internal resistance. Two policymakers opposed the move because of concerns about economic growth, adding uncertainty about the timing and pace of future tightening.
This is a classic example of the market trading expectations rather than simply reacting to the headline. The BOJ raised rates, but that move was already priced in. Yen buyers needed guidance pointing toward another hike relatively soon. When they did not get it, yen-long positions were unwound and USDJPY moved sharply higher.
The interest-rate differential also remains firmly in favor of the U.S. dollar. Japan’s policy rate is now 1.25%, but U.S. rates remain substantially higher and the Federal Reserve delivered a more hawkish policy outlook this week.
The bottom line is that the BOJ was hawkish in action, but not hawkish enough in its guidance. Yen buyers had their shot, but the central bank did not give them enough ammunition to extend the move.
USDJPY approaches its next key technical targets
USDJPY has moved up to test the swing area near 158.04. That area has repeatedly influenced price action going back to late July and is the first key hurdle for buyers.
The next major target is the 200-day moving average at 158.41. That moving average is a longer-term technical barometer and will be an important test of whether buyers can extend the post-BOJ rally.
- Stay below 158.04–158.41, and sellers may attempt to slow the rally.
- Move above 158.41 and stay above, and the technical bias becomes more bullish, with the next target near 159.57.
- Initial support comes near the 61.8% retracement at 157.53.
- A move back below that level would take some of the momentum away from buyers and refocus attention on 156.57.
The sharp move toward 158.00 will also increase the risk of verbal intervention from Japanese officials. The risk of direct intervention would rise if the yen’s decline became too fast or disorderly.
U.S. stock futures point higher
U.S. stock futures are implying another positive opening following yesterday’s gains saw the Nasdaq lead the way with a gain of 1.69%. The S&P rose 1.14% and the Dow advanced by 0.61% yesterday. The futures are implying:
- Dow industrial average futures: +7 points
- S&P 500 futures: +13.50 points
- Nasdaq 100 futures: +94 points
U.S. Treasury yields move higher
Treasury yields are higher across the curve:
- 2-year: 4.7219%, +3.2 basis points
- 5-year: 4.8342%, +3.3 basis points
- 10-year: 4.9694%, +2.2 basis points
- 30-year: 5.2985%, +0.3 basis point
The rise in yields is helping support the dollar, particularly against the lower-yielding Japanese yen.
Oil retreats below $100 as supply fears ease
WTI crude oil is down more than 5% and has moved back below the $100 level to around $96.14.
Middle East tensions remain elevated, but the market is becoming less concerned about an immediate and prolonged disruption to Saudi oil supplies. Expectations that Saudi Arabia will restore capacity on its East-West pipeline, combined with reports of additional Saudi barrels being moved through alternative routes, have taken some of the geopolitical risk premium out of crude.
Higher refined-product inventories and rising Chinese fuel exports are also contributing to the decline. The geopolitical risks have not disappeared, but for now the market is trading the expectation that more supply will continue reaching global buyers. Reuters
This is another reminder that bullish headlines do not always produce higher prices. The price action shows how the market is interpreting the news. When supply concerns fail to push oil higher, traders holding long positions may head for the exits and accelerate the move lower.
Other markets
Gold and silver are holding onto gains despite the stronger dollar and higher yields:
- Gold: $4,376.59, +0.84%
- Silver: $66.894, +2.63%
- Bitcoin: $77,983, +2.13%
ECB President Christine Lagarde said interest rates do not move in lockstep with energy prices and stressed that other factors also influence policy. She described uncertainty as dominating the economic outlook and reiterated that the ECB remains well positioned to respond on a meeting-by-meeting basis.
This article was written by Greg Michalowski at investinglive.com.