Yen near three-month lows

Yen near three-month lows – The Yen has fallen to its lowest level in almost three months against the strengthening dollar, raising concerns that Japanese officials may take action to support the currency if this depreciation continues. The Yen has breached a key technical level of approximately 151.38, its 200-day moving average, which analysts suggest could lead to further declines. It dropped by as much as 0.5% to 151.83 against the dollar, the weakest level since July 31.

This decline in the Yen is largely due to a rise in global yields, as the Federal Reserve has indicated caution regarding interest rate cuts. There is also speculation that the next U.S. administration might adopt more inflationary policies following the presidential election. Japan’s 40-year sovereign yield briefly climbed to 2.535% on Wednesday, the highest level since 2008, although it remains significantly lower than the yields for shorter-maturity Treasuries, such as the 10-year and 30-year bonds.

DXY continues to climb

The Dollar has risen, putting pressure on Asian shares due to a subdued risk appetite, linked to the expectation of less aggressive interest rate cuts by the Federal Reserve.

The greenback strengthened against all Group-of-10 currencies, while 10-year Treasury yields continued to climb after surpassing 4.2% for the first time since July earlier this week. In a global bond selloff, yields on Japan’s 40-year sovereign notes also rose, reaching the highest levels in 16 years. Consequently, the Yen fell by as much as 0.8% against the dollar.

Eyes on Bank of Canada today

The Bank of Canada is likely to implement a significant cut to interest rates, recognizing that borrowing costs should decrease more rapidly as inflation declines and economic growth stagnates.

Markets and economists expect that policymakers, led by Governor Tiff Macklem, will reduce the policy rate by half a percentage point to 3.75% on Wednesday. This would be the first reduction of that magnitude since the Covid-19 pandemic.

A large cut – anticipated by nearly all of Canada’s major lenders – would indicate an urgency to bring the benchmark overnight rate to what is considered the neutral level, where it neither slows down nor stimulates the economy.

As inflation now falls below the central bank’s target of 2% and growth is tracking well below the bank’s estimates, maintaining high borrowing costs is no longer necessary. Some analysts also express concern that a slow approach to easing rates may not be sufficient to prevent inflation from declining too much, which could potentially lead to outright deflation.

EURUSD falls to a two-month low

The Euro continued to decline, reaching its lowest point since early August, amid expectations that the European Central Bank (ECB) will keep lowering interest rates to support the struggling economy in the region.

The currency fell by 0.2%, trading at $1.0793 in New York, and weakened throughout the session after Governing Council member Mario Centeno indicated that the central bank would consider increasing monetary easing if the economic data warranted it.

ECB President Christine Lagarde later stated in an interview with Bloomberg Television that while the direction of interest rates is clear, the pace of any changes is still “to be determined.”

The Euro has faced pressure as traders began speculating about a possible half-point rate reduction from the ECB, driven by concerns over the health of the European economy. The central bank has accelerated the pace of easing, implementing consecutive rate cuts as inflation has decreased more quickly than expected.

Gold and Silver shrugging off yield surge

Precious metals are experiencing significant price movements in commodities today, with both Gold and Silver extending their gains despite rising Treasury yields. Gold is just below the record high set on Monday, while Silver – showing much stronger enthusiasm – appears poised to surpass $35 per ounce.

The current situation is complex: the US election is approaching, with the possibility of a second, potentially disruptive term for Donald Trump; tensions in the Middle East persist, as investors await Israel’s response to Iran; and the Federal Reserve faces a crucial decision on whether to continue cutting interest rates.

Brent near $76

Oil prices stabilized as a U.S. industry group reported a modest increase in nationwide crude inventories, and the Biden administration intensified efforts to secure a ceasefire in the Middle East, potentially reducing tensions in the region.

Brent crude held steady near $76 per barrel after rising more than 4% over the past two days, while West Texas Intermediate was priced above $71. The American Petroleum Institute estimated that stockpiles increased by 1.6 million barrels last week, according to sources familiar with the data. Official figures will be released later on Wednesday.

October has seen significant volatility in the oil market, driven by tensions in the Middle East, which raise concerns about possible supply disruptions in a region responsible for about one-third of global output.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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