The volatility of the dollar-yen and pound exchange rates is gradually settling down this week. For the dollar-yen pair, it seems that 150 yen is taking root as a psychological point in the market following the repeated masked interventions since the end of last week. After the sharp drop from just below 152 yen last weekend, it has been moving to prevent it from climbing above 150 yen since the beginning of this week. On the other hand, at the US FOMC meeting in early November, the consensus was for a significant 75bp hike in interest rates. For December, the rate hike is expected to be 50bp or 75bp. There is a deep-rooted expectation that the Japan-US interest rate differential will widen in the near term. The Ministry of Finance has taken a strong stance against speculative price movements, and the market is likely to stall at around 149 yen for a while.
As for the pound, the large-scale tax cuts that the former Prime Minister Truss launched without financial resources appeared to sell in the UK, and the pound exchange rate plunged in what could be called a flash crash. However, at present, the pound/dollar low of 1.0350 level seems far below. With the birth of the Sunak government now confirmed, the key question is whether the new economic policies will be accepted by both the market and the British public. However, there are signs that the pound/dollar pair is likely to range between 1.10-1.15.
Currently, the depreciation of the yuan is likely to lead to strong dollar pressure on the currencies of emerging countries. The background is that it is considered extremely difficult to see whether China’s new system will be able to achieve both anti-coronavirus measures and economic stimulus measures. The renminbi exchange rate hit new lows every day. However, the movement of the strong dollar has not spread so much to major national currencies such as the euro.
Ahead of notable events such as the ECB Governing Council meeting on Thursday, preliminary US GDP figures, and next week’s US FOMC and US employment data, the market is likely to be difficult to move today.
We will continue to target the dollar/yen pair today, and plan to sell when the timing is right.
