SINGAPORE – The yen was on the backfoot on Tuesday as Japan’s new central bank chief signaled patience on any monetary tightening while the euro climbed on prospects of a 50 basis point interest rate hike for the common currency bloc at next week’s policy meeting.
The dollar also struggled to make meaningful gains in Asia as fresh bank jitters had traders expecting US interest rate cuts before long.
The euro rose above $1.10 overnight and was still going strong at $1.1056 in Asia. Trade was thinned by holidays in Australia and New Zealand and ahead of central bank meetings in Japan on Friday and the US and Europe next week.
European Central Bank (ECB) board member Isabel Schnabel told Politico that a 50 bp rate hike was not off the table and would depend on data – notably inflation figures due two days before May’s meeting.
French ECB policymaker Francois Villeroy de Galhau seemed to have a different view, calling for further hikes to be limited in number and size in an interview with Le Figaro, but markets have focused on the fact that still more hikes are expected.
Futures pricing implies about a 2/3 chance of a 25 bp ECB hike and a 1/3 change of a larger 50 bp rise.
“It’s not fully priced in yet, so if the ECB does go 50 then it will be euro supportive, I think that’s what’s being reflected in the market,” Bank of Singapore currency strategist Moh Siong Sim said.
The euro has also hit an eight-year high at 148.47 yen as new Bank of Japan new governor Kazuo Ueda has been signalling he is not in a hurry to shift policy. This week’s BOJ meeting, which concludes on Friday, is his first in charge.
According to Electronic Broking Services data stretching back to the early 2000s, the yen is also at its lowest on the Swiss currency in two decades at 151.35 per franc. — Reuters
