FX UPDATE 19/11/2024

The Dollar strengthened against the Yen on Monday after Japan's top central banker indicated potential future policy tightening but left the timing uncertain, keeping markets unsure whether a move would occur next month. Bank of Japan (BOJ) Governor Kazuo Ueda reaffirmed that interest rates would gradually rise if the economy followed the central bank's forecast. However, he did not specify whether a rate hike would happen in December, noting that the BOJ must consider various risks, including those related to the US economy, Reuters reports. Consequently, the lack of clear guidance from Japan's central bank caused the Dollar to rise 0.35% to 154.72 Yen, moving away from Friday's low of 153.86. The Dollar had pulled back late last week after Japanese Finance Minister Katsunobu Kato warned the market of potential intervention if the Yen weakened too quickly. 

This retreat provided temporary stability for the Euro, which held steady at $1.0540, though it remained close to its recent one-year low of $1.0496. Furthermore, the Dollar remained steady at 106.660 against a basket of currencies, after reaching a one-year high of 107.07 on Friday. The index rose 1.6% over the past week, marking six weeks of gains in the last seven. This rally has coincided with a sharp increase in 10-year Treasury yields, which have climbed 70 basis points since early October, driving a 5.4% rise in the US Dollar index.

Moreover, Sterling could face further declines against the Euro in the coming week if UK inflation and PMI data fall short of expectations. The GBP/EUR exchange rate dropped by 0.65% last week, despite initially reaching a two-year high of 1.21 last Monday, Pound Sterling Live reports. However, this recent high reaffirms the broader positive outlook for the Pound against the Euro, driven by the UK's higher interest rates relative to the Eurozone. “The Pound continues to hold its own vs. the EUR,” according to Jane Foley, Senior FX Strategist at Rabobank. “We retain our forecast that EUR/GBP is likely to edge to the 0.8150 level on a 12-month view.”

Elsewhere, South Africa's Rand strengthened on Monday following S&P's decision to upgrade the country's credit rating outlook. At the time of writing, the Rand was trading at 18.12 against the Dollar, 0.52% stronger than its previous close. On Friday, S&P revised South Africa's outlook from “stable” to “positive,” citing the new coalition government's plans for accelerated economic reforms and an increase in private investments. “The credit outlook boost may incentivise continued reforms and efforts by the government to solidify these gains, such as improvements in governance and infrastructure investments," said Andre Cilliers, currency strategist at TreasuryONE. This week, local investors in South Africa will focus on October's inflation figures and the upcoming interest rate decision by the South African Reserve Bank (SARB). Indeed, the SARB is expected to lower rates by 25 basis points on Thursday.

In India, the Rupee remained almost unchanged on Monday, as possible intervention by the Reserve Bank of India (RBI) helped counteract pressure from a weak performance in local equities, which have been heavily impacted by ongoing foreign portfolio outflows this quarter. At the time of writing, the Rupee was trading at 84.3875 against the greenback, virtually flat from its previous close of 84.3950 on Thursday. Indian financial markets were closed on Friday for a local holiday.