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SYDNEY, (Reuters) – The U.S. dollar went on a rollercoaster ride versus the yen on Monday as markets suspected more intervention from Japanese authorities, while Asian shares rallied on just the hint of an eventual slowdown in U.S. rate hikes.
The dollar had started in a bullish mood with an early rush up to 149.70 yen, only to retreat as far as 145.28 in a matter of minutes. The dollar was last up 0.5% at 148.36 amid some wild swings.
The Financial Times reported the Bank of Japan may have sold at least $30 billion on Friday in an effort to restrain the yen’s weakness, which has sharply lifted the cost of imports, particularly for resources.
Japanese authorities again declined to confirm whether they had intervened, but the price action strongly suggested they had.
Also moving was sterling, which see-sawed on news Boris Johnson had dropped out of running for British prime minister.
That increased the chance that former finance minister, and the market’s preferred candidate, Rishi Sunak would win power and reduce the political uncertainty hanging over the pound, at least for a little while.
The news initially saw sterling jump almost a cent to $1.1402, and to was last trading up 0.2% at $1.1328 as investors waited for more clarity on the contest.
Equities extended the bounce that began late in New York on Friday on talk the Federal Reserve was debating when to slow the pace of hikes and might signal a step back at its November meeting.
Markets are still priced for a rise of 75 basis points next month, but have scaled back bets on a matching move in December. The peak for rates has also edged down to around 4.87%, from above 5.0% early last week.
Just the chance of a less aggressive Fed helped S&P 500 futures add 0.6% in Asia, while Nasdaq futures rose 0.8%.
MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.7%, while Japan’s Nikkei gained 1.2% and South Korea 1.5%.
Markets are now watching data on U.S. gross domestic product due Thursday and core inflation measures the day after. The economy is forecast to have grown an annualised 2.1% in the third quarter, while the Atlanta Fed’s GDP Now estimate is up at 2.9%.
Sentiment will also be tested by some major earnings with Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) all reporting.
The European Central Bank meets this week and is widely expected to raise its rates by 75 basis points, though it is less clear whether it will signal a further such move in December.
“Although we do not expect any ‘dovish’ policy signal, we maintain a bias towards a lower rate path than currently priced by markets,” said analysts at NatWest Markets in a note.
“We forecast +50bp in December and +25bp in early 2023 to a 2.25% peak,” they added “There is more uncertainty around QT, where beginning sales in Q1 2023 could well be announced.”
The euro was flat at $0.9849, having briefly been as high as $0.9899 early in the session.
The possibility of a slowdown in U.S. increases also helped bonds pare some of their recent heavy losses, with U.S. 10-year Treasury yields at 4.21% compared to a 15-year peak of 4.337% on Friday. [US/]
Gold was another beneficiary, edging up 0.2% to $1,660 an ounce. [GOL/]
Likewise, oil prices were inching higher with Brent up 27 cents to $93.77 a barrel, while U.S. crude rose 34 cents to $85.39.[O/R]
