Dollar Slips Below 104 Yen After Cautious Fed And Steady BoJ

The US dollar hit a 22-month low against the yen in Asian trading on Thursday as the Fed failed to signal a July rate hike, while the Bank of Japan held off from further easing. The greenback dropped to levels last seen in August 2014, touching a low of 103.54 yen. The euro was steadier though at around 1.1267 dollars.

The Fed kept interest rates unchanged yesterday as expected, but sounded more dovish than in the last FOMC meeting in April. Fed Chair Janet Yellen told reporters in the press conference that there would need to be “sufficient momentum” in the economy before rates are raised again, while stressing the uncertainty surrounding the current outlook, including that from a possible Brexit.

10-year US treasury yields dropped to a 4-month low of 1.5380% while gold prices hit a 22-month high of $1313.60 per ounce as markets sharply pared back expectations of a near-term rate hike by the Fed after yesterday’s meeting.

In contrast, the Bank of Japan decided to leave its policy unchanged, despite a weak inflation outlook and a strengthening yen that in recent months has put increased pressure on Japanese authorities to weaken the currency. Most analysts now expect that the Bank of Japan will expand monetary stimulus in July when it updates it economic forecasts.

The yen surged against all major currencies on Thursday after the BoJ’s decision, as a more dovish Fed and growing Brexit fears increased demand for the safe haven.

The euro hit a 3½-year low of 116.90 yen, while sterling dropped to 146.37 yen – the lowest since March 2013.

The pound failed to find support from yesterday’s solid UK jobs data as Brexit uncertainty and an increasingly acrimonious referendum campaign weighed on the currency. Sterling dipped to 1.4154 against the dollar in late Asian trading, while the euro was trading 0.7959 pounds.

The Australian and New Zealand dollars were unable to hold on to earlier gains when they were boosted by positive data. The kiwi rose to 0.7092 against the US dollar after GDP growth beat expectations. New Zealand’s economy expanded by 0.7% quarter-on-quarter in the first three months of the year, above estimates of 0.5%. But the kiwi fell back to around 0.7041 in late Asian session as flat dairy prices from yesterday’s auction weighed on the currency.

Meanwhile the Aussie only briefly spiked up to 0.7438 against the greenback after data showed the Australian economy created more jobs than expected in May. The unemployment rate was unchanged though at 5.7%, in line with estimates. The Aussie slipped to around 0.7355 after the RBA’s Assistant Governor warned that China’s uncertain outlook poses risks to the Australian economy.

Lending figures out of China today surprised on the upside as new yuan loans rose by more than expected in May, allaying fears that authorities would tighten credit supply to prevent a debt crisis. The yuan firmed against the dollar on Thursday following a sharp depreciation yesterday that took the currency to a five-year low. It was last trading at 6.5810 per dollar in onshore trading.

The Swiss National Bank became the third central bank in less than 24 hours to keep policy steady when it announced its decision at the start of European trading. The SNB kept its deposit rate unchanged at -0.75% and revised up its inflation forecasts for 2016 and 2017. The dollar jumped to 0.96 francs after the announcement.

Coming up later today, the Bank of England is expected to also keep its rates unchanged when it announces its decision at 11:00 GMT. Also to watch for the UK today are the latest retail sales figures, while US and Eurozone inflation data will also attract attention.

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