Dollar slips after weak data; yen ticks up
THE dollar slipped on Thursday (Jan 19), after a raft of data showed the US economy is losing momentum, while the yen rebounded as traders continued to bet the Bank of Japan (BOJ) would shift away from ultra-loose monetary policy.
US data released on Wednesday showed retail sales fell by the most in a year in December, and manufacturing output suffered its biggest drop in nearly two years, prompting a sharp drop in bond yields.
Analysts said the fall in yields, which makes dollar-denominated bonds less attractive, was a factor weighing on the greenback.
“The developments make us more confident that the Fed is getting close to the end of their tightening cycle, and support our bearish US dollar outlook,” said Lee Hardman, senior currency analyst at Japanese bank MUFG.
Yet he said the dollar should not fall too far, given its status as a safe asset in times of economic stress.
The euro was last up 0.2 per cent against the dollar at US$1.082. It hit a nine-month high of US$1.089 on Wednesday before paring its gains.
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European Central Bank (ECB) President Christine Lagarde on Thursday said inflation is far too high and that the ECB will keep raising interest rates.
“We shall stay the course until such a time when we have moved into restrictive territory for long enough, so that we can return inflation to 2 per cent in a timely manner,” she said in a panel discussion during the World Economic Forum in Davos, Switzerland.
The dollar fell against the Japanese yen and was last 0.2 per cent lower at 128.69 yen. That went a small way to undoing the previous day’s rise, which came after the BOJ’s decision to stand pat on its ultra-loose monetary policy.
Defying market expectations, the BOJ kept its interest rate targets and policy of yield curve control intact, and instead crafted a new weapon to prevent long-term rates from rising too much in a show of resolve.
The decision sent the dollar up some 2 per cent against the yen, although it later pared gains to finish roughly 0.6 per cent higher.
“It’s really reflecting the fact that market participants are still speculating on a shift in the Bank of Japan’s policy,” Carol Kong, a currency strategist at Commonwealth Bank of Australia, said of the yen’s rise on Thursday.
“While there are still high expectations for a policy shift ... I think that will keep the yen pretty elevated in the near term.”
The dollar index, which measures the US currency against a basket of peers, was last down 0.1 per cent to 102.23.
Sterling slipped 0.16 per cent to US$1.233, after falling from the previous session’s one-month high of US$1.244.
The Australian dollar slumped 0.88 per cent to US$0.688, further pressured by a surprise dip in Australian employment in December.
The New Zealand dollar lost 1.11 per cent to stand at US$0.637.
New Zealand Prime Minister Jacinda Ardern on Thursday made a shock announcement that she would step down no later than early February and not seek re-election. REUTERS
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