SINGAPORE (Reuters) – It was a notable mover as it hit a one-month high on Monday, extending its rally after the Federal Reserve’s highest rate cut last week, while the yen and other major currencies held steady in Japanese markets during the holiday period.
The dollar strengthened against the yen last week after policy meetings in the United States and Japan, hitting a two-week high of 144.50 yen. It was around 144.08 on Monday morning.
The Bank of Japan (BOJ) left interest rates unchanged last week and indicated it was in no rush to hike again. That decision, which comes just days after the Fed’s 50-point rate cut, has partially halted the yen’s sharp gains this month. The currency rose 1.4% in September.
With Japan closed on the day of the Autumnal Equinox, the main driver of trade was expectations about further Fed rate cuts and the gains that have driven equities, commodities and other risk assets.
Bitcoin rose 0.8% above $63,200 and is not far from a one-month high. The Australian dollar was lower around $0.68, ending its more than 3% rise in less than two weeks.
The , which measures the greenback against major currencies, gained slightly to 100.8, continuing to stay above the one-year low reached last week.
The Fed’s rate cut “appears to have eased market fears of a US recession,” Goldman Sachs said in a note. “Our G10 FX team expects a slight increase in the US dollar over the next 3 months, before easing again in the 6- and 12-month outlook.”
Fed futures are pricing in a 75 bps rate cut by the end of this year, and about 200 bps on a December 2025 cut that would take the Fed’s policy rate by the end of 2025 to 2.75%, according to -CME FedWatch.
The U.S. Treasury yield curve has been steepening in the wake of the Fed’s rate cut, and investors added to bets in favor of a second external rate cut after Fed Governor Christopher Waller said on Friday he was concerned that inflation may be well below the central bank’s 2% target.
Meanwhile, most economists polled by Reuters expect two more bps rate cuts at the Fed’s last two meetings this year.
In weekend news, US House Republicans introduced a three-month moratorium bill to avoid a government shutdown.
For the yen, the ruling party’s upcoming vote later this week to choose a new prime minister makes the BOJ’s job more challenging in the coming months. A snap election appears likely in late October.
Liberal Democratic Party frontrunners to replace outgoing Prime Minister Fumio Kishida have presented differing views on fiscal policy.
Sanae Takaichi – who will be the nation’s first female prime minister – is a reflationist who has accused the Bank of Japan of raising rates too soon. Shigeru Ishiba said the central bank was “on the right policy track”, while Shinjiro Koizumi, son of the charismatic former prime minister Junichiro Koizumi, said he would so far respect the BOJ’s independence.
The choice presents two-way risks for the yen, Barclays analysts wrote over the weekend. “The biggest risk here is that if Abenomics advocate Takaichi wins, this could trigger the BOJ’s policy adjustment program and raise concerns about monetary policy,” they said.
That could lead to a steeper curve for Japanese bonds and downward pressure on the yen as investors anticipate further rate hikes, they said.
The Bank of England kept rates unchanged on Thursday, and its governor said the central bank should be “careful not to cut too quickly or too much.”
The pound was down 0.1% at $1.3310, staying close to Friday’s peak after the release of strong British sales data.
