US dollar slips as markets bounce, Japan policy shift talk lifts yen

THE US dollar slipped on Monday (Dec 19) as a pick-up in market sentiment drove stocks and riskier currencies higher, while the yen gained on reports that Japan will consider revising a decade-old blueprint for fighting deflation.

The US dollar index – which tracks the greenback against a basket of six major currencies – fell 0.2 per cent to 104.580, reversing some of its gains from the previous week, after the US Federal Reserve and the European Central Bank (ECB) hiked rates and promised more to come.

A rebound in risk sentiment across markets pushed European stocks higher after a bruising sell-off last week, while currencies including the euro and sterling retraced some of their losses from the previous two sessions.

The euro gained 0.3 per cent to US$1.06095, while sterling strengthened 0.3 per cent to US$1.21760. However, both remained lower than their levels before last week’s central bank moves.

“Markets are trying to find their feet a bit,” said Kenneth Broux, currency strategist at Societe Generale. “I wouldn’t hang my hat on the price action this morning.”

The safe-haven US dollar has broadly gained this year, up 9 per cent, on concerns about the global economy and widespread inflation. But it has slid nearly 7 per cent in the fourth quarter, as investors bet that peak inflation and economic recovery may be in sight.

The Japanese yen gained 0.2 per cent on the day to 136.420 per US dollar, on reports that Japan is considering revising a key monetary policy after a new Bank of Japan governor is appointed in April next year.

The government will consider revising a joint statement it signed in 2013 that commits the central bank to meeting a 2 per cent inflation target as soon as possible, sources said.

“The upshot is that this perhaps provides timely flexibility, but it doesn’t bind monetary policy bias one way or another,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. He added that more clarity was needed for a bigger impact on the yen.

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US dollar gains as risk tolerance drops with hawkish central banks

A survey of business morale in Germany showed a bigger increase than expected in December, supporting broader market risk sentiment, as the outlook for Europe’s largest economy improved despite the energy crisis.

ECB vice-president Luis de Guindos said on Monday that the eurozone will continue to hike rates to curb inflation, and is not considering revising its own midterm inflation goal of 2 per cent. REUTERS