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Dollar Climbs Vs Yen Ahead Of FOMC, Pound Loses Ground After Carney Speaks On Rates And Brexit

On Tuesday, the dollar hit a fresh eight-week high against the yen in Asia with investors widely expecting the Fed policymakers to announce the start of monetary tightening later this year in their two-day meeting that concludes on Wednesday. Its British counterpart was in an uptrend as well following a deep fall on Monday after the BOE Governor, Mark Carney, talked down the country’s post-Brexit trade prospects and argued that rates should rise moderately, giving no clues on when the central bank will deliver higher rates.

While the US President is expected to deliver his first speech in front of the UN leaders who aim to find a solution to North Korea’s aggressive nuclear programs, the dollar peaked at a fresh eight-week high of 111.87 early in Asia, gaining mainly from stronger US treasury yields. The move came due to expectations that the Fed will announce its plans for balance sheet reduction later this year at the end of its two-day policy meeting on Thursday, while markets are also pricing a potential third-rate hike in December.

Meanwhile, the pound pared yesterday’s losses made after the BOE Governor, Mark Carney, said on Monday at the IMF headquarters that interest rates should rise but “gradually” and to a “limited extent”, giving no clues on the timeframe of this process. Moreover, he claimed that Britain’s exit from the EU will hurt growth prospects in the near-term and push up inflation, saying that new trade relations with non- EU members are less likely to offset drawbacks arising from weaker trade agreements with EU members. The pound retreated by almost 1% on Monday to $1.3463 before it surged to $1.3550 early on Tuesday.

Euro/dollar posted gains during the session, reaching a one-week high of 1.2005 before it fell to 1.1994.

The aussie was moving upwards most of the time during the Asian session after the RBA minutes released today maintained an upbeat view on the economic outlook, while the Australian house price growth came in higher than expected, giving some support to the currency. The minutes mentioned that employment growth is expected to continue improving with a limited impact on the already subdued wages. In addition, minutes revealed risks from household debt rising faster than household income and from a stronger local currency. Aussie/dollar slipped to a session low of $0.7960 following the report but then jumped to $0.7983, finding some support from the House price index which grew by 1.9% q/q, above the 1.1% forecasted in the second quarter.

The loonie weakened against the dollar after the BOC’s Deputy Governor, Timothy Lane, said that the central bank will keep a close eye on the currency, which has recently strengthened to a two-year high versus its US counterpart, before taking any policy decision. Moreover, he added that households are now more indebted compared to the period when rates were close to neutral. However, he claimed that a strengthening economy will help consumers to deal with debt costs. Dollar/loonie drifted higher on late Monday to a two-week high of 1.2336, falling to 1.2286 during the Asian session.

Looking at commodities, WTI crude was up by 0.46% on the day at $50.14 per barrel and Brent rose by 0.31% to $55.65.

Gold was trading flat at $1,307.10 per ounce.

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