The yen remained strong against the US dollar for a fourth straight session on Tuesday as investors strategized on the possibility that the Bank of Japan will ease monetary policy next year. On the other hand, the United States Federal Reserve is expected to relax its policy.
Also putting pressure on the US dollar and encouraging the strengthening of the yen. The US dollar hit its lowest level since mid-September at 147.16 yen and was last down 0.53% at 147.6. More broadly, the US dollar index, a gauge of the US dollar's performance against six other currencies, fell to its lowest level since late August at 103.17 and was last down 0.16% at 103.15.
"Markets are becoming more optimistic and momentum is developing, regarding the Bank of Japan's ability to exit the expected very loose monetary policy next year. Indirectly this ends negative interest rates,” said Jane Foley, Head of FX Strategy at Rabobank.
Foley said the sharp decline in the US dollar also prompted investors to shift some of their trades against the yen. The yuan on the other hand reached its highest level in almost four months at 7.13 against the US dollar and was last at 7.138.
"We think the big jump in the Chinese yuan is the main driver of a stronger yen this week," said Simon Harvey, Head of FX Analysis at Monex Europe.
The euro hit its highest level since mid-August at $1.0966 on Tuesday and was last slightly higher at $1.0944. Sterling was up 0.26% at $1.2538, after hitting a two-month high of $1.2554. On Monday, the Governor of the Bank of England, Andrew Bailey, said that it was "too early to think about a rate cut" in Britain.
US bond yields have tumbled as investors expect the Federal Reserve to cut interest rates next year, following a slowdown in US inflation in October.
The 10-year US bond yield was in the process of falling for a fourth straight session on Tuesday to 4.39%, after falling on Monday following a strong auction of the 20-year bond. It hit a 16-year high of more than 5% in October.
The market is now focusing on the minutes of the last Fed meeting and also in the main focus today is the speech of the President of the European Central Bank Christine Lagarde.
