November 24, 2022
  • November 24, 2022

The euro slips below parity, the yen stable ahead of the Bank of Japan

By on October 28, 2022 0

Photo illustration of euro and american dollar banknotes.

Nicolas Economou | Nurphoto | Getty Images

The euro held below parity on Friday as investors eyed a potential slowdown in future rate hikes by the European Central Bank, while the yen was on course for its best week in more than two months ahead of a key central bank policy decision.

The euro was 0.05% lower at $0.9960, after falling more than 1% overnight, after the ECB raised rates by 75 basis points, as expected, but adopted a more dovish tone on its rate outlook.

The central bank dropped a reference to raising rates “in upcoming meetings” that appeared in its September statement, which traders interpreted to mean a series of sharp rate hikes was coming to an end.

“The ECB’s policy decisions have been less hawkish than most expected. Most of the surprise came, in fact, from Christine Lagarde’s comments that the ECB has already made substantial progress in withdrawing from stimulus policy,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

The US dollar indexwhich measures the greenback against a basket of currencies, with the euro the most heavily weighted, rose 0.06% to 110.62, after gaining nearly 0.8% overnight.

“I think the US dollar’s gains mainly reflect the ECB’s dovish meeting as well as the falling euro/dollar,” Kong said.

The greenback had fallen earlier in the week on hopes of a potential pivot from the Fed.

The yen last bought 146.41 to the dollar and was on track for a weekly gain of nearly 1%, its biggest since August.

The fragile currency received support from an alleged intervention by the Japanese authorities to support the yen last Friday and Monday.

The Bank of Japan announces its monetary policy decision on Friday and looks set to keep interest rates ultra-low, putting further pressure on the yen due to widening interest rate differentials with the rest of the world.

“At the moment, I really don’t see any case for a change in monetary policy by the Bank of Japan,” said the CBA’s Kong.

“Beware of another potential dollar/yen exchange intervention.

Last month, Japan intervened in the foreign exchange market to buy the yen for the first time since 1998, just after the BOJ’s decision to stick to its very accommodative policy.

Friday’s data showed core consumer prices in the Japanese capital, a leading indicator of national figures, rose 3.4% in October from a year earlier, marking the fastest annual pace since 1989.

Somewhere else, sterling fell 0.12% to $1.155, but was on track for a weekly gain of 2%, on optimism that new British Prime Minister Rishi Sunak would offer an antidote to the mess left by his predecessor Liz Truss.

The Aussie was down 0.09% at $0.64485 while the Kiwi edged down 0.11% to $0.5823, although both looked set to extend a second straight week of gains.