The yen weakened to a one-week low against the dollar as the market awaited details of a big stimulus package from new Prime Minister Sanae Takaichi, widely viewed as favouring fiscal and monetary easing.
Sterling remained under pressure after British data on Wednesday showed consumer inflation held steady at 3.8% last month, defying economists’ estimates for it to accelerate.
Traders rushed to price a 75% chance of the Bank of England cutting rates by its December meeting – up sharply from a 46% probability before the data was published – although those odds had eased back to 61% on Thursday.
The U.S. dollar index, which measures the currency against the yen, sterling, euro and three other peers, edged up 0.05% to 98.979 as of 0050 GMT.
The dollar added 0.17% to 152.21 yen, and earlier touched 152.26 yen for the first time since October 14. Sterling sagged 0.09% to $1.3345. The euro eased 0.06% to $1.1604. The Trump administration is considering curbs on a wide array of software-powered exports to China, from laptops to jet engines, to retaliate against Beijing’s latest round of rare earth export restrictions, Reuters reported on Wednesday.
The currency market reaction, though, has been largely sanguine, with traditional safe havens such as the yen and Swiss franc finding little support, while gold continued its retreat from a record high.
“Trade tensions remain the driver of volatility in the markets (but) it can be strongly argued market participants expect these threats not to materialise into action,” said Kyle Rodda, a senior financial markets analyst at Capital.com.
“They are being seen as brinkmanship and ways to drive negotiations forward.”
Meanwhile, the dearth of official U.S. macroeconomic data continues with the government shutdown about to enter its 23rd day, although the consumer price index is due for release on Friday, more than a week late. Other data, such as monthly payrolls, have not been released at all.
“Markets are marking time. There’s not a lot of reliable news,” said National Australia Bank strategist Gavin Friend.
And even the CPI report “is almost being looked through”, because almost irrespective of what it shows, “everybody thinks the Fed is going to cut next week, and probably again in December”, Friend said.
Market-implied odds of a quarter-point Fed interest rate cut stands at 97% for October 29. A total of 48.5 basis points of reductions are priced in over the remainder of the year.
The Bank of Japan decides policy on October 30, with traders laying around 1-in-5 odds on a quarter-point rate hike.
Economists generally think the new prime minister won’t delay the BOJ from raising rates, but most still expect the next hike will come in December at the earliest, with January being the most popular choice, according to a recent Reuters poll.
Takaichi is preparing an economic stimulus package that is likely to exceed last year’s $92 billion to help households tackle inflation, government sources familiar with the plan told Reuters on Wednesday.
The exact scale of the package is still being finalised, the sources said. It could be announced as early as next month.
