NEW YORK: The Japanese yen slid against the dollar on Wednesday even as expectations rose that the Bank of Japan could hike rates next month, while sterling gained as investors welcomed a UK budget that delivered a larger-than-expected fiscal buffer.
The dollar fell, weighed down by expectations of an interest rate cut by the Federal Reserve at next month’s meeting and a mixed batch of economic data did not change that view.
But it has been the yen that has been on the market’s radar for some time, as investors remain alert for the possibility of Japanese intervention to boost the weakening currency.
The BOJ is preparing markets for a possible interest rate hike as soon as next month, sources told Reuters, reviving previous hawkish language as worries about sharp yen declines return and political pressure to keep rates low fades.
The yen initially rose against the dollar after the report, before reversing course. It was last down 0.3 percent at 156.51 per dollar, having earlier hit an intraday high of 155.66. “It’s going to be hard to significantly change the trajectory of the yen with just one hike unless the BOJ delivers a hawkish hike and commits to raising rates consistently through 2026 to bring inflation under control,” said Vassili Serebriakov, FX strategist at UBS in New York.
The yen has been under pressure from worries about Japan’s worsening fiscal position.
“There is a possibility of intervention over Thanksgiving, but if the market’s fear of intervention is sufficient to stop dollar/yen from rising, it sort of reduces the possibility,” said Jane Foley, head of FX strategy at Rabobank London.
The pound was also in focus with Britain’s budget announcement.
British finance minister Rachel Reeves delivered a budget that will give her more room for meeting her borrowing targets, a move that calmed investor nerves.
In a figure closely-watched by investors assessing Britain’s borrowing risks, the Office for Budget Responsibility (OBR) said the government will now have more than double its previous buffer for meeting its fiscal targets even as it raises spending on welfare.
Sterling was last up 0.5 percent on the dollar at USD1.3218 and was also higher versus the euro, which slipped 0.2 percent to 87.67 pence. .
Data showed that initial claims for US state unemployment benefits dropped 6,000 to a seasonally adjusted 216,000 for the week ended November 22, the lowest since April. Economists polled by Reuters had forecast 225,000 claims for the latest week.
A separate report showed non-defense capital goods orders excluding aircraft, a closely-tracked proxy for business spending, jumped 0.9 percent in September after an upwardly revised 0.9 percent increase in August.
Investors are also betting that the reported leading candidate to be the next Fed chair may pursue a more dovish policy. Bloomberg News reported that White House economic adviser Kevin Hassett has emerged as the frontrunner to be the new chair.
Elsewhere, the New Zealand dollar jumped after the country’s central bank cut its interest rate to 2.25 percent as expected, but signaled an end to the easing cycle as the economy showed early signs of recovery.