One might have expected tumult on the American markets as the country’s presidential campaign hots up, but traders will be interested to note that the dollar has actually risen against the yen this week.
With an upbeat message expected from the nation’s Federal Reserve ahead of its upcoming meeting, the dollar has proven buoyant, and now investors are keen to see whether more of the same can be expected.
The Dollar Rises
Forex is not a game for the simple man, and the complexities of the currency markets will always keep us guessing. Little surprise then that the dollar has bucked the trend seen amongst most currencies this week, and been in positively glowing good health.
Inching up against the yen on Monday, it managed to maintain a near four-week high against the euro in the wake of Brexit uncertainty.
The pattern emerges ahead of imminent meetings for the Bank of Japan and the U.S. Federal Reserve, both of which are expected to be dollar-positive.
This seems to be a direct result of improved economic signals and a bounce in job numbers for June, which make the Fed one of the few global central banks to have positive data to present.
Speculation around Japan’s Monetary Policy
America’s good fortune is in direct contrast to the ill winds surrounding Japan’s economy, with many speculating that the nation will ease its monetary policy. This comes after a month spent listening to leading figures in the country state that they will not finance either consumer or business spending more directly.
These factors indicate an imminent downturn for the yen, with all eyes focused on the decisions that these two central banks will make. As London-based strategist Richard Cochinos explains: “The macroeconomic outlook is 100 per cent focused on the Fed and the Bank of Japan.”
Indeed, the main sentiment amongst investors seems to suggest that additional quantitative easing is expected, accompanied by a boost in the value of the dollar, an observation that Mr Cochinos agrees with: “Short-term capital is positioning for dollar upside.”
However, he has cautioned that: “To retain significant upside, for it to get above 110 yen, you’re going to have to do more than just increase quantitative easing.”
With meetings for both banks looming on the horizon, it will not be long before we see whether or not he is proved correct. For now, however, all that you can do is keep a close eye on the markets to see which direction they begin to take.