News Column

Dollar in lower 104 yen in Tokyo on early U.S. rate hike expectations

August 25, 2014

Sophie Jackman

The U.S. dollar stayed in the lower 104 yen zone in Tokyo on Monday, moving narrowly due to a lack of market-moving events after rising above the 104 yen line in earlier Oceanian trading on growing expectations for a U.S. interest rate hike amid signs of economic recovery.

At 5 p.m., the dollar fetched 104.12-14 yen compared with 103.88-98 yen in New York and 103.76-77 yen in Tokyo at 5 p.m. Friday. It moved between 104.09 yen and 104.27 yen during the day, changing hands most frequently at 104.18 yen.

The euro was quoted at $1.3186-3191 and 137.32-36 yen against $1.3235-3245 and 137.53-63 yen in New York and $1.3286-3288 and 137.86-90 yen in Tokyo late Friday afternoon.

The dollar gained to the 104 yen level as Fed Chair Janet Yellen's speech Friday at an annual symposium of policymakers at Jackson Hole, Wyoming, stoked bets for an earlier-than-expected rate hike, said Shinichiro Kadota, foreign exchange strategist at Barclays Bank.

"Yellen has generally been seen as quite dovish among Fed members, but her message now is a very balanced one -- that as soon as economic indicators pick up, we can expect a rate hike -- and this has driven demand for the dollar," Kadota said.

This week brings relatively little fresh U.S. events and is sandwiched between the major events of Jackson Hole and next week's monthly U.S. jobs data release.

The few U.S. data due this week could yet push up the U.S. currency, with new home sales likely to follow the upbeat tone of last Thursday's existing home sales, said Masayuki Hoshina, chief economist at Okasan Securities Co.

Even if some U.S. data come out weak, the market's consensus is that the U.S. economy is on track to recovery, and spurred on by Fed policymakers' increasingly hawkish tone, traders are likely to target the year's high of 105.45 yen, Hoshina said.

The euro fell to lows not seen since early last September against the dollar and slid against the yen after European Central Bank President Mario Draghi, also speaking at Jackson Hole, said the ECB is ready to act further in order to ensure stable inflation.

Although some observers believe the ECB will wait for the completion of European Union-wide bank stress testing in October before rolling out any further easing policy, the central bank tends to give out hints to the market before it makes a policy change, Hoshina said.

"With expectations of further easing running high, the euro has probably bottomed out against the dollar for now, but it still has the potential to fall further against the yen," he added.

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Source: Japan Economic Newswire

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