Forex News
Chris Turner at ING argues that while European Central Bank (ECB) rhetoric points to a December rate hike, markets see US tightening as more credible than in the Eurozone. Wider short-dated EUR/USD swap differentials are weighing on the pair.
Euro pressured by rate differentials
"European Central Bank rhetoric firmly points to the need for a rate hike in December. The problem for EUR/USD is that the market sees the potential for a prolonged tightening cycle as more credible in the US than in the eurozone. You don't hear many ECB speakers talking of a demand shock in Europe."
"Short-dated EUR/USD swap differentials have moved out to the widest levels of the year and are clearly weighing on the pair."
"Given the run of expected US inflation data over the coming weeks, we struggle to see what can take the pressure off EUR/USD. A break below 1.10 is not a given, but that level is certainly at risk into year-end."
"EUR/USD bulls will have to be hoping for either an AI crash, the ECB sounding far more hawkish or perhaps some major geopolitical breakthrough in Iran or Ukraine."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Commerzbank’s Volkmar Baur notes that revised expectations for further Federal Reserve (Fed) hikes and parallel Bank of Japan (BoJ) moves limit near-term upside for the Japanese Yen. Policy risk is seen shifting towards Japan due to upcoming BoJ board appointments.
Limited upside before longer-term recovery
"This reassessment of our US central bank expectations naturally impacts our forecast for the Japanese yen as well. Our economists no longer expect the US central bank to halt its interest rate hikes in December. Instead, they have factored in a further rate rise by the Fed in March."
"While we also expect the Bank of Japan to implement two further rate rises - in December and in spring next year - this no longer favours the Japanese yen. Rather, it signals a convergence between the central banks, which will likely have little impact on the currency."
"Consequently, we see little potential for the Japanese yen in the near future. In recent days, the yen has already weakened slightly due to rising market expectations regarding the Fed, and is currently trading just below USD-JPY 160. By the middle of next year, we now expect only a slight appreciation towards 155."
"In the longer term, however, we continue to expect the JPY to strengthen. The structural shift in Japan’s interest rate landscape means that domestic bonds are once again significantly more attractive, particularly for Japanese investors."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities’ FX team, led by Jayati Bharadwaj and Howard Du, expects the US Dollar to remain firm as Fed rate expectations rise. They see the USD supported by stronger US data and higher yields, with USD/CAD likely retesting 1.43 and EUR/USD facing further downside toward sub-1.10 as the Fed out-hikes other major central banks.
Dollar supported by rising US yields
"FX: The USD will likely stay resilient until peak Fed hawkishness. USDCAD could retest year-to-date high at 1.43 in the near-term. Breakout below 1.11 in EURUSD likely opened the door for more downside."
"The USD will likely remain resilient until Fed hawkishness peaks. The USD's efficacy as an equity risk-off haven asset has evidently declined, as shown by the falling correlation between the US dollar and US equity. However, rising US yields should still provide upward momentum for the USD, particularly if the market believes the Fed can out-hike other major central banks in the coming months."
"In G10, USDCAD will likely retest the year-to-date high at 1.43 as weak data in Canada weighs on near-term BoC rate hike likelihood relative to the Fed. We also closed our EURUSD risk reversal position as the prospect for more spot downside toward sub-1.10 range has increased."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/GBP picks up from 0.8350 lows, on track to its second weekly recovery.
- Hawkish comments from ECB officials are supporting the Euro, although higher Oil prices are keeping rallies limited.
- Inflation figures from Eurozone member countries confirm that price pressures remain elevated.
The Euro (EUR) posts minor gains against the British Pound (GBP) on Friday with risk appetite fading as hopes of a Middle East peace deal wane and oil prices pick up from two-month lows. The EUR/GBP pair remains steady above 0.8350, on track to its second consecutive weekly appreciation, although it seems unable to extend gains above 0,8370, which leaves the broader bearish trend in place.
Investors’ appetite for risk has vanished on Friday, amid the lack of progress on the diplomatic efforts to put an end to the Middle East conflict. US President Donald Trump dampened hopes of a breakthrough further, stating on Thursday that “we do not need a deal with Iran”. Tehran, in turn, stuck to a set of conditions already deemed unacceptable by the US.
Oil prices pick up, adding pressure on the Euro
The waning hopes of a swift resolution of the conflict boosted Brent Oil prices 3.7% higher on Thursday, to levels right above $95.00 before easing to $94.15 on Friday. Crude is still about 17% below last week’s highs, but concerns that the situation in the Middle East might take a turn for the worse before getting better are likely to keep prices buoyed and Euro rallies capped.
In the Eurozone, European Central Bank policymakers (ECB) have reiterated their concern about the high inflation pressures earlier on Friday, adding to the case for a rate hike in December and keeping the Euro supported.
On the macroeconomic front, German wholesale prices accelerated to an 8.8% yearly pace in October, from 8.7% in September, although the monthly reading showed some moderation. France’s Consumer Price Index (CPI) eased beyond expectations, while in Spain, inflation remained steady, in both cases at levels well above the ECB’s 2% target.
The UK calendar is thin on Friday, with the only event worth mentioning being the NIESR Gross Domestic Product (GDP) Estimate due later in the day, which is unlikely to have a major impact on the Pound.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- Gold attracts some buyers on Friday as the USD pauses after a strong rally to a 19-month peak.
- Fed hike bets and geopolitical risk could limit deeper USD losses and cap the upside for bullion.
- The technical setup further warrants some caution before positioning for any meaningful gains.
Gold (XAU/USD) sticks to modest recovery gains through the first half of the European session, though it remains below the $3,900 mark and near its lowest level since September 2025, which it touched the previous day. The US Dollar (USD) takes a breather after a strong three-day rally to its highest level since April 2025, offering some support to the commodity. However, firming US Federal Reserve (Fed) rate-hike expectations and Middle East uncertainties continue to support the Greenback. This, in turn, keeps a lid on the precious metal’s intraday move up.
Against the backdrop of hotter-than-expected US October consumer inflation figures, hawkish commentary from several Federal Reserve (Fed) officials prompted traders to price in a tighter monetary policy stance. In fact, the CME Group's FedWatch Tool indicates that a 25-basis-points (bps) rate hike in December is fully priced in, and traders are assigning around a 13% chance of a jumbo 50-bps increase. This, along with the overnight move higher in crude oil prices, led to an extended selloff in US Treasuries, lifting the yield on the benchmark 10-year government bond further beyond the 5% threshold and favoring USD bulls.
Meanwhile, US President Donald Trump on Thursday issued a fresh warning to Iran and said that those responsible for any attack on American officials would no longer exist. Trump added that he would not hesitate to launch further military action if the situation warranted it. Adding to this, Trump wrote in a Truth Social post that the US does not need a deal with Iran, adding that those days have long since passed. Moreover, attacks on Saudi Arabia's energy infrastructure and commercial ships in the Strait of Hormuz keep the geopolitical risk premium in play, which validates the positive USD outlook and should cap the Gold price.
Moving ahead, the US Producer Price Index (PPI) highlights Friday's economic docket. Furthermore, speeches from influential FOMC members would influence expectations about the Fed's policy path. Apart from this, the incoming geopolitical headlines might continue to infuse volatility in global financial markets and drive USD demand, providing some impetus to the commodity. Nevertheless, the XAU/USD pair remains on track to register weekly losses. Meanwhile, the fundamental backdrop seems tilted firmly in favor of USD bulls, suggesting that any subsequent rise in the gold price is more likely to be sold into and remain capped.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair maintains a near-term bearish bias following the recent repeated failures near the $4,150 horizontal resistance and a break below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Moreover, momentum indicators stay weak, with the Relative Strength Index (RSI) hovering near the oversold band at 35.43 and the Moving Average Convergence Divergence (MACD) holding in negative territory with the line around -15.22. This, in turn, hints that downside pressure is still dominant despite the early signs of exhaustion.
Hence, any further move up could face initial resistance near the $3,960 area ahead of the $4,000 psychological mark and the 100-period EMA at $4,037.06. A sustained recovery above this barrier would be needed to ease the current bearish setup and open the way for a broader corrective bounce towards the $4,100 round figure en route to the $4,150 barrier. On the downside, the $3,865-$3,855 region, or the year-to-date low, could act as an interim demand area, which, if broken, will set the stage for an extension of a well-established downtrend from the August swing high.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Producer Price Index (YoY)
The Producer Price Index released by the Bureau of Labor statistics, Department of Labor measures the average changes in prices in primary markets of the US by producers of commodities in all states of processing. Changes in the PPI are widely followed as an indicator of commodity inflation. Generally speaking, a high reading is seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish).
Read more.Next release: Fri Nov 13, 2026 13:30
Frequency: Monthly
Consensus: 6.6%
Previous: 6.3%
Source: US Bureau of Labor Statistics
- GBP/JPY lacks a firm intraday directional bias and oscillates in a range on Friday.
- Intervention fears and BoJ rate hike bets support the JPY, capping spot prices.
- The wide Japan-UK rate differential acts as a tailwind and limits the downside.
The GBP/JPY cross seesaws between tepid gains and minor losses on Friday, trading around mid-211.00s during the early European session, just above a one-and-a-half-week low, which it touched the previous day. Spot prices, however, remain confined within a one-week-old range as traders remain on high alert amid speculation that authorities will step in again to support the Japanese Yen (JPY).
In fact, Japan’s top currency diplomat, Atsushi Mimura, warned on Thursday that recent currency movements had been too fast and reminded markets that it was too early to forget the summer intervention. Moreover, Japan's Finance Minister Satsuki Katayama signaled that authorities are monitoring one-sided, swift FX moves, adding that the government will respond appropriately to currency volatility and will engage with the US Treasury. Adding to this, rising bets for an imminent rate hike by the Bank of Japan (BoJ) support the JPY and cap the GBP/JPY cross.
Investors, however, remain uncertain about the likely timing and the pace of BoJ rate hikes. This, along with the wide interest rate differential between Japan and other major economies, including the UK, keeps the so-called carry trade active and holds back traders from placing bullish bets on the JPY. The BoJ policy rate is at 1.25%, while the Bank of England (BoE) raised its base rate to 4.00%, leaving a gap of 275 basis points. Moreover, traders are pricing in another BoE rate hike in December, preserving the yield advantage for the GBP and supporting the GBP/JPY cross.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
- The US Dollar Index holds onto its 19-month high of 103.24 on hawkish Fed rhetoric.
- Fed’s interest rate hike prospects have boosted by hawkish Fed speak and hot US CPI figures.
- The breakout of the Bullish Flag pattern backs the possibility of a fresh upside leg.
The US Dollar Index (DXY) trades firmly against its major currency peers during the European trading session on Friday, hovering near its 19-month high of 103.24 posted the previous day.
The DXY has outperformed this week as accelerating United States (US) inflationary pressures have boosted expectations that the Federal Reserve (Fed) will pace up the interest rate cycle.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.74% | 0.87% | 0.96% | 0.96% | 1.06% | 0.42% | 2.05% | |
| EUR | -0.74% | 0.15% | 0.21% | 0.23% | 0.43% | -0.31% | 1.32% | |
| GBP | -0.87% | -0.15% | 0.06% | 0.07% | 0.28% | -0.46% | 1.17% | |
| JPY | -0.96% | -0.21% | -0.06% | 0.00% | 0.05% | -0.51% | 1.05% | |
| CAD | -0.96% | -0.23% | -0.07% | -0.01% | 0.07% | -0.56% | 1.13% | |
| AUD | -1.06% | -0.43% | -0.28% | -0.05% | -0.07% | -0.73% | 0.80% | |
| NZD | -0.42% | 0.31% | 0.46% | 0.51% | 0.56% | 0.73% | 1.65% | |
| CHF | -2.05% | -1.32% | -1.17% | -1.05% | -1.13% | -0.80% | -1.65% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Dollar momentum builds as hawkish Fed rhetoric meets firm us inflation
Strategists at RBC highlight that “U.S. core-inflation pressures are building, while the labour market remains historically tight,” reinforcing the backdrop for further Dollar strength. ING’s FX team adds that “the combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the dollar,” with DXY now “back at Liberation Day (April 2025) levels” and “real front-end rate differentials continuing to fuel strong dollar momentum.” They stress that “importantly, this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in.”
Looking ahead, ING says “we continue to see upside risks for the dollar in the coming days,” noting that “the Fed's Chris Waller has put a 50bp December move on the radar, and that should keep markets biased towards hawkish interpretations of incoming data.” With “December pricing remains at 28bp, leaving scope for further adjustment,” ING argues that positioning and rate expectations still offer room for the Dollar’s rally to extend.
US Dollar Index Technical Analysis
In the daily chart, Dollar Index Spot trades at 103.17. The near-term bias is bullish, as price holds the breakout of the Bullish Flag chart pattern decisively, and well above the 20-day Exponential Moving Average (EMA) at 102.17.
The Relative Strength Index (14) at 65.16 remains in positive territory but shy of overbought, hinting that bullish momentum is firm yet not extreme.
On the downside, initial support is seen at the 20-day EMA at 102.17, followed by the former channel ceiling around 102.04 and the channel floor near 100.81 if a deeper correction unfolds. On the topside, the next notable structural hurdle is 104.00.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
RBC Economics argues the case for higher Federal Reserve (Fed) rates is stronger than for the Bank of Canada (BoC), citing rising US core inflation, robust Q3 GDP and a historically tight labour market. The bank expects a cumulative 50 basis points of additional Fed tightening, including a December hike, and sees risks skewed toward an even larger US hiking cycle as growth and inflation outperform.
Fed tightening risks skewed higher
"Rising core-inflation pressures, strong Q3 GDP growth, and a historically tight labour market continue to point to a need for additional Fed tightening to contain inflationary pressure."
"We expect both the BoC and the Fed to hike in December."
"Risks are relatively balanced around our BoC forecast but tilted toward a larger hiking cycle in the United States."
"US growth and labour-market momentum continue. GDP forecasts have been revised higher again, averaging 2.4% in 2026 and 2027, up from previous forecasts of 2.1% and 2.2%, respectively. We continue to expect the unemployment rate to average near historical lows, at 4.2% in both 2026 and 2027."
"We continue to expect a cumulative 50 basis points of additional Fed tightening in this cycle, including one hike at the next meeting in December. Recent producer-price data suggest that further inflation pressures are building in supply chains. We see risks of a larger tightening cycle than currently assumed."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- NZD/USD depreciates as strong US CPI data lifts December Fed rate hike odds to 87%.
- Traders await Friday’s US PPI report for further inflation clues, with headline prices projected to rise 6.6% annually.
- New Zealand's Unemployment Rate climbed to an 11-year high of 5.7%, dampening bets for aggressive RBNZ rate hikes.
NZD/USD continues its losing streak for the fourth consecutive day, trading around 0.5540 during Asian hours on Friday. The pair holds losses as the US Dollar (USD) remains steady on persistent inflation concerns and expectations of tighter monetary policy.
Stronger-than-expected US Consumer Price Index (CPI) data released earlier this week has reinforced forecasts for a Federal Reserve rate hike in December, particularly after Fed Governor Christopher Waller noted that a 50-basis-point increase should be considered if core inflation stays elevated.
According to the CME FedWatch tool, traders are now pricing in nearly 87% odds of a 25-basis-point hike at the central bank's December 8–9 meeting, alongside a 13.13% probability of a half-point increase.
Traders are now turning their attention to Friday’s US Producer Price Index (PPI) report for further clarity on the Fed's rate path, with October headline PPI expected to rise 6.6% year-on-year and core PPI projected to increase 5.0%.
New Zealand's Unemployment Rate climbed to an 11-year high of 5.7%. This weak labor data has dampened bets for aggressive RBNZ rate hikes, weighing on the kiwi dollar.
NZD supported as New Zealand election outcome backs RBNZ’s single mandate
Analysts at Brown Brothers Harriman highlight that New Zealand’s ruling center-right coalition “holds a one-seat majority following Sunday’s election, with final results due November 27.” They note that the incumbent coalition led by the National Party “wants to stick to the RBNZ’s sole price stability mandate, which has been in place since December 2023,” in contrast to the Labour Party, which “ran on a proposal to return to a dual inflation-employment mandate.” BBH suggests this policy divergence is helping underpin NZD, as the current framework is seen as limiting the risk of a more dovish stance from the central bank.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- USD/JPY pulls back from two-week highs above the key 160.00 level but remains steady above 159.80.
- Japanese Yen's weakness has prompted Prime Minister Takaichi to launch a clear intervention warning.
- Surging US yields and dovish BoJ comments have hammered the Yen this week.
The Japanese Yen (JPY) hesitates a few pips away from the key 160.00 level against the US Dollar (USD) on Friday, weighed by a strong rebound in US Treasury yields, which has prompted Japanese Prime Minister Sanae Takaichi to launch an intervention warning earlier in the day.
The USD/JPY pair accelerated its decline this week, as Federal Reserve (Fed) speakers opened the door for a jumbo rate hike in December, as US inflation data released on Tuesday confirmed that price pressures keep escalating well above the 2% bank target for price stability.
Fed officials bring a 50-basis-point hike to the table
Before that, Fed Governor Christopher Waller affirmed that with elevated inflation, “hiking only 25 basis points would put our credibility at risk". A few days later, Dallas Fed President Lorie Logan shared that view, assuring that “the FOMC needs to implement at least two more 25-basis-point rate increases.”
The CME’S FedWatch tool shows that markets are now pricing a 13.3% chance of a half-point hike at the December 9 meeting, compared to 0% last week. This has boosted the yield on the two-year Government bond by 35 basis points this week and the benchmark 10-year yield by 25 basis points, back above the 5% level.
US Treasury yields’ rally has boosted the US Dollar across the board, crushing the Japanese Yen, which has also been hit by dovish comments by Bank of Japan (BoJ) official Taichiro Asada, who warned on Thursday about the economic risks of raising borrowing costs too fast
Against this background, Japanese Prime Minister Sanae Takaichi said earlier on Friday that Tokyo authorities are “closely monitoring markets” and that the government “will strive to preserve orderly forex markets,” a warning that the Ministry of Finance is ready to intervene to support the Yen. Takaichi also said that she is in contact with US financial authorities, suggesting the possibility of a coordinated action like the one that boosted the JPY in late July.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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