HG MARKETS:

Friday saw a decline in the value of the yen as the Bank of Japan signaled that it was not in a rush to hike interest rates after maintaining them at the largely anticipated 0.25% level. The dollar surged 1.2% to 144.32 yen, hitting a peak in just over a fortnight after Governor Kazuo Ueda stated that the BoJ could afford to take its time assessing the effects of uncertainty in the world economy.

The data on Japanese consumer prices, released on Friday, which revealed core inflation increased to 2.8% in August while overall inflation reached 3.0%, was also being digested by the markets. This has been a difficult week for the Japanese yen, as traders booked profits on their previous long yen holdings, causing the euro to rise 3.2% to 161.05. Additionally, the euro strengthened to $1.1154, up 0.7% against the dollar for the week and nearly at the August high of $1.1201. A break above that would aim for a peak of $1.1275 in July 2023.

A lot of the rest of the globe is moving toward Japan, despite the fact that China’s central bank has failed to deliver on the much-anticipated rate decrease. Unexpectedly, China held steady benchmark lending rates during Friday’s monthly fixing. With the help of the US Federal Reserve’s aggressive easing that drove the dollar to a 16-month low against the yuan, China has been making indications about additional stimulus measures. According to two persons with knowledge of the situation, major state-owned banks were observed purchasing dollars on Friday in the onshore spot foreign exchange market in an effort to stop the yuan from strengthening too quickly. The Federal Reserve’s rate reduction of 50 basis points on Wednesday continued to be the week’s major event. By the end of the year, the markets factor in a nearly 44% likelihood that the Fed will reduce by another 50 basis points in November. By the end of 2025, rates are expected to reach 2.85%, which is currently considered the Fed’s estimate of neutral. This dovish perspective has caused a significant surge in risk assets and reinforced expectations for sustained U.S. economic growth. In addition, currencies linked to commodities prices and global economy prospered, with the Australian dollar rising beyond $0.6800.

At 100.84, the U.S. dollar index increased little and rose barely above a one-year low. The Bank of England’s decision to hold steady interest rates on Thursday, despite the governor’s warning to be “careful not to cut too fast or by too much,” sent sterling higher. The strong retail sales data from Friday helped the pound rise 1.25 percent to $1.3288, its highest level since March 2022. Additionally, it had its biggest decline versus the euro in almost two years, with the pound falling as low as 83.81 pence.