The dollar slipped ahead of the U.S. Federal Reserve’s two-day policy meeting that begins later on Tuesday, while the yen gained despite expectations that the Bank of Japan will ease later this week as investors grow increasingly skeptical about the impact of further stimulus.
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USA equity markets fell while stocks in Europe traded slightly above break-even as gains in major healthcare and consumer goods stocks propped up European equities to offset persistent concerns over the region’s banking system.
Expectations of more BoJ easing increased after government officials warned Tuesday it would miss its own growth projections and fail to balance the books by 2020, as planned.
“The Japanese government’s fiscal stimulus appears to be ‘buy the rumour, sell the fact, ‘” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
Meanwhile, the USA central bank is widely expected to stand pat on policy at its meeting that ends on Wednesday, but investors were bracing for any possible signals from the Fed about a tightening later this year.
The dollar slid 1.7 percent against the yen to 103.995, its lowest since July 14 while the euro skidded 1.5 percent to 114.465 yen, its lowest since July 12.
Benchmark German 10-year yields were flat on the day at minus 0.08 per cent and the Italian and Spanish equivalents were at 1.24 and 1.12 per cent respectively, just a couple of points from multi-month lows.
“It doesn’t matter what you throw at the market”. “It doesn’t pay not to be invested”.
On Wall Street, the Dow Jones Industrial Average ended Monday, with a mild loss of 0.42%, while the S&P 500 dipped 0.3% and the Nasdaq 0.05%.
The kiwi decreased to 73.62 yen from 74.17 yen yesterday ahead of the Bank of Japan policy meeting later this week.
Data showed USA consumer confidence holding steady in July while sales of new single-family homes hit their highest level in almost 8-1/2 years in June, suggesting sustained momentum in the economy.
Meanwhile, the Federal Reserve is expected to stand pat on policy at its meeting that ends on Wednesday.
Other data showed moderate gains in house prices in May, which should support consumer spending and keep home purchasing affordable, especially for first-time buyers who have started venturing into the housing market.
According to a Bloomberg poll, 78 percent of analysts expect that the Bank of Japan will expand easing this week. But traders seemed wary of signals the Fed would consider raising rates by year-end on signs the economic expansion remains on track. Some had been hoping for helicopter money, where the central bank would underwrite government debt, though policymakers have denied this.
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“The initial headlines put pressure on the dollar/yen, because there was no way to know at first that it was not a terrorist attack, similar to those that have taken place in the US and Europe recently”, said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. Brent LCOc1 rose 15 cents to settle higher at $44.87 a barrel.
