Dollar shrugs off suspected yen intervention, Europe clings to Fed hopes

LONDON/SYDNEY, Oct 24 (Reuters) – The dollar resisted a further push of Japanese intervention against the yen on Monday, as European markets were boosted by hopes that U.S. interest rates could rise more slowly than previously thought.

The dollar rose to 149.70 yen in early trading before falling precipitously to 145.28 within minutes in what traders and analysts said was in the hands of the Bank of Japan. It was down almost 1% at 149.24.

The Financial Times reported that the BOJ may have sold at least $30 billion on Friday in an attempt to shield the yen from further weakness, which sharply increased the cost of Japanese imports, especially for resources.

Japanese officials again declined to confirm whether they had intervened, but the price action suggested they had.

Any action to support the yen goes against the BOJ’s commitment to controlling the Japanese government’s borrowing costs and could increase pressure on it to give up yield curve control in the coming months. his political meeting this week.

Sterling, meanwhile, has been swung in volatile trade following the news that Boris Johnson has dropped out of the race for Britain’s prime minister.

Former finance minister Rishi Sunak, who is the market’s preferred candidate, has emerged as the frontrunner for the job, which could reduce some of the political uncertainty hanging over the pound.

The news initially saw the pound jump almost a penny to $1.1402 but it couldn’t hold and last traded at $1.1328 as investors waited. more clarity on the contest. The leadership could potentially be settled later Monday if Sunak becomes the only candidate to secure the minimum number of MP votes required to advance.

“Everyday life is tricky. My favorite phrase this morning is that it’s time to be a poker player, not a chess player. It’s all about positioning, feeling and understanding who you’re playing against,” said Kit Juckes, Societe Generale strategist.

Stocks mostly extended the rebound that began late in New York on Friday on talk that the Federal Reserve was debating when to slow the pace of increases and could signal a step back at its November meeting.

Markets are still pricing in a 75 basis point rise next month, but have cut bets on a corresponding move in December. The peak in rates also fell to around 4.87%, from more than 5% at the start of last week.

The ECB and the Bank of Canada ready to march

Stocks in Europe opened on a bullish note, with the STOXX 600 up 0.7% on the day ahead of a week of packed earnings as 118 companies, including big guns like HSBC (HSBA.L), Unilever (ULVR.L) and TotalEnergies (TTEF.PA) are ready to report.

China’s blue chips (.CSI300) fell nearly 3%, while the offshore yuan hit a new all-time high against the dollar after Xi Jinping secured an unprecedented third term in office, choosing a body senior manager made up of loyalists. Xi is expected to stick to his growth-damaging zero COVID policy, analysts say.

Late data on gross domestic product (GDP) showed China’s economy grew 3.9% in the third quarter, above a forecast of 3.5%, but retail sales disappointed, with a 2.5% increase.

Markets are now awaiting US GDP figures due on Thursday and core inflation measures the following day. The economy is expected to have grown 2.1% at an annualized rate in the third quarter, while the Atlanta Fed GDP Now indicator rose to 2.9% last week from 2.8%.

Sentiment will also be tested by strong earnings with Apple (AAPL.O), Microsoft (MSFT.O), Google-parent Alphabet (GOOGL.O) and Amazon (AMZN.O) all reporting.

The European Central Bank meets this week and is expected to raise rates by 75 basis points, although it’s less clear whether it will signal another such move in December.

“While we do not expect any ‘dovish’ policy signal, we maintain a bias toward a rate path below that currently set by the markets,” NatWest Markets analysts said in a note.

“We expect +50bp in December and +25bp in early 2023 for a peak at 2.25%,” they added. “There is more uncertainty around QT (quantitative tightening), where the start of sales in Q1 2023 may well be announced.”

The euro was down slightly at $0.9835, after briefly hitting $0.9899 at the start of the session.

The Bank of Canada is also expected to tighten its policy by 75 basis points at its meeting this week.

The possibility of a slowdown in US rate hikes helped bonds pare some of their recent heavy losses, with 10-year US Treasury yields falling to 4.16% from a 15-year high of 4.337 % Friday.

In commodity markets, gold was discounted to $1,654 an ounce.

Oil prices gave up early gains following soft Chinese demand data. Brent fell 42 cents to $93.08 a barrel, while U.S. crude fell 41 cents to $84.64.

Reporting by Wayne Cole; Editing by Jacqueline Wong, Christopher Cushing and Susan Fenton

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