Posted on February 11, 2015 by the XM Investment Research Desk at 8:15 am GMT
The US dollar posted gains against the yen during Wednesday’s Asian session, making a fresh 1-month high at 119.65, as positive risk sentiment, a rise in US government bond yields and a complacent attitude by the G20 on yen depreciation, fueled gains in the pair.
Expectations for Fed rate hikes as early as this summer received a boost after Richmond Fed President Jeffrey Lacker said a June rate hike looked like an attractive option. San Francisco Federal Reserve President John Williams echoed those views by saying that the time was approaching when the Fed ought to start thinking seriously about policy normalization. The comments followed similar statements from Fed officials in previous days, which suggests that the Fed is preparing the markets for higher rates.
10-year Treasury bond yields crossed above the 2% threshold, which supported the US dollar. 2% 10-year rates may sound low, but compared to the respective German 10-year rates of 0.37% and the Japanese rates of 0.38%, they are comparatively attractive. Although expectations about the Fed are said to be more important for dollar / yen these days compared to risk appetite (the yen has not been sold too hard on stock market rallies lately), the fact that there was a powerful rally on Wall Street did not work in favor of the Japanese currency. Furthermore, Bank of Japan Governor Haruhiko Kuroda said that the G20 group of countries did not single out Japan or the yen for criticism with respect to the currency’s depreciation.
The euro was more or less stable around the 1.1315 level, as it awaited news from today’s crucial Eurogroup meeting about Greece. Eurozone Finance Ministers will discuss the situation following Greece’s proposals for securing bridge financing, altering the terms of the bailout deal and making the country’s debt burden more manageable. European officials yesterday appeared willing to play down hopes of a deal during today’s meeting, which means that little could be resolved today and the outcome could be more negotiations in coming days. Even no definite outcome is expected, the positions of the two parties (Greece and the rest of the Eurozone) should become clearer as a result of statements from the body itself and the key players inside it. Hopes of a deal increased the previous day as Greece appeared to make its positions more flexible.
The Eurogroup meeting later in the day will dominate developments, while central bank officials from the Fed and the Bank of England will also attract some attention. The first half of the European session is expected to be quiet absent economic data announcements.