The dollar fell against all of its major peers after a rate check Friday by the Federal Reserve Bank of New York spurred speculation the US may assist Japan in efforts to boost the yen. Gold rose above $5,000 for the first time and US stock futures dropped with Japanese shares.
Bloomberg’s gauge of the dollar slid to the lowest level since September, while the yen surged as much as 1% to 154.22 per dollar. The moves came as Japan’s top currency chief Atsushi Mimura said authorities in Tokyo will respond to foreign exchange moves in close coordination with their counterparts in Washington. His comments followed a warning from Japanese Prime Minister Sanae Takaichi that the government is ready to take action.
Futures on the S&P 500 Index slipped 0.4%, a further sign of weakness in demand for US assets. Over the weekend, concerns rose about another US government shutdown, while President Donald Trump threatened 100% tariffs on imports from Canada.
Traders interpreted the New York Fed’s actions as an indication the central bank was preparing to assist Japanese officials to intervene directly in the currency market to prop up the yen. The dollar fell the most since May last week amid unpredictable US policymaking, tariff tensions between the US and Europe, and attacks on the Federal Reserve’s independence.
“The bigger signal is policy coordination,” said Daniel Baeza, senior vice president at Frontclear. “If markets interpret coordination as a willingness to tolerate easier global dollar conditions, especially alongside a dovish Fed reaction function, that could reinforce short-term dollar downside.
Attention is turning to the dollar and Japan once again after a surge in the Asian country’s bond yields last week unsettled global fixed-income markets. The coming days are pivotal for investors as the Fed prepares to deliver its policy decision and megacaps including Microsoft Corp. and Tesla Inc. report earnings.
The dollar weakness fed through into gains for Asian currencies, with the Malaysian ringgit rising to the strongest level since 2018, while the South Korean won jumped as much as 1.2%. Treasuries edged higher, with the benchmark 10-year yield falling one basis point to 4.21%.
For many dollar watchers, signs of US support to boost the yen re-opens the debate about potential co-ordinated foreign-exchange intervention to guide the greenback lower against the currencies of its key trading partners. The thinking goes that such a pact would help American exporters compete with rivals such as China and Japan.
“If the New York Fed chooses to join in, then that would amplify the yen rally,” said Gareth Berry, a strategist at Macquarie Bank Ltd. in Singapore. “And not just for symbolic reasons. Japan has lots of USD to sell, but the NY Fed has an infinite amount. It would also be interpreted as a sign that Trump wants a weaker dollar more generally.”
What Bloomberg strategists say…
The motivation to bolster the yen is clear as there is an indirect link to Treasuries. Drawing a line under yen weakness will support JGBs, which provides a positive read across to Treasuries. And keeping Treasury yields down is an important policy angle for Bessent.
— Mark Cranfield, MLIV. For full analysis, click here.
Over the weekend, concerns about another US government shutdown increased as Senate Democratic leader Chuck Schumer vowed to block a massive spending package unless Republicans strip funding for the Department of Homeland Security. That raised the risk of a partial US government shutdown.
Traders are also paying attention to geopolitical tensions after Trump dispatched naval assets to the Middle East, prompting fresh speculation that he’ll follow through on threats to attack Iran’s senior leadership amid a violent crackdown on nationwide protests.
The main event this week will be the outcome of the Fed’s Jan. 27-28 policy meeting. The central bank is widely expected to keep rates unchanged even as Trump calls for lower borrowing costs.
Bond investors will also turn their focus to leadership change at the central bank after Trump said last week he will soon reveal a successor to Chair Jerome Powell.
Meanwhile, Gold advanced beyond $5,000 an ounce for the first time, extending a breakneck rally fueled by Trump’s reshaping of international relations and investor flight from sovereign bonds and currencies. Silver topped $100 an ounce for the first time last week, extending a rally built on surging demand for haven assets and frenzied buying in retail markets from Shanghai to New York.
Corporate Highlights:
- BYD Co. aims to increase deliveries to markets outside China by nearly 25% as the world’s largest electric-vehicle maker grapples with challenges at home.
- Chinese officials have told the country’s largest tech firms including Alibaba Group Holding Ltd. they can prepare orders for Nvidia Corp.’s H200 AI chips.
Key Events This Week:
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.4% as of 9:59 a.m. Tokyo time
- Hang Seng futures rose 0.2%
- Nikkei 225 futures (OSE) fell 1.4%
- S&P/ASX 200 futures rose 0.1%
- Japan’s Topix fell 2%
- Euro Stoxx 50 futures fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.3% to $1.1861
- The Japanese yen rose 0.6% to 154.82 per dollar
- The offshore yuan was little changed at 6.9482 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $86,735.04
- Ether rose 0.8% to $2,838.7
Bonds
- The yield on 10-year Treasuries declined one basis point to 4.21%
- Japan’s 10-year yield declined 4.5 basis points to 2.210%
- Australia’s 10-year yield advanced two basis points to 4.82%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold rose 1.1% to $5,040.81 an ounce
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