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BOJ eyes rate hike as soon as next month - sources
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Investors welcome UK budget
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Traders anticipate December Fed cut, eye new Fed chair
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New Zealand dollar surges on hawkish RBNZ tilt
(Adds new comment, byline, NEW YORK dateline, US data, updates
prices)
By Ozan Ergenay and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK, Nov 26 (Reuters) - The Japanese yen
slid against the dollar on Wednesday even as expectations rose
that the Bank of Japan could hike rates next month, while
sterling gained as investors welcomed a UK budget that delivered
a larger-than-expected fiscal buffer.
The dollar fell, weighed down by expectations of an interest
rate cut by the Federal Reserve at next month's meeting and a
mixed batch of economic data did not change that view.
But it has been the yen that has been on the market's radar for
some time, as investors remain alert for the possibility of
Japanese intervention to boost the weakening currency.
The BOJ is preparing markets for a possible interest rate hike
as soon as next month, sources told Reuters, reviving previous
hawkish language as worries about sharp yen declines return and
political pressure to keep rates low fades.
The yen initially rose against the dollar after the report,
before reversing course. It was last down 0.3% at 156.51 per
dollar, having earlier hit an intraday high of 155.66.
"It's going to be hard to significantly change the trajectory of
the yen with just one hike unless the BOJ delivers a hawkish
hike and commits to raising rates consistently through 2026 to
bring inflation under control," said Vassili Serebriakov, FX
strategist at UBS in New York.
"Unless that happens, I don't think the yen is going to benefit
significantly because the rate differentials between the U.S.
and Japan are still quite wide and volatility is still low."
The yen has been under pressure from worries about Japan's
worsening fiscal position.
"There is a possibility of intervention over Thanksgiving,
but if the market's fear of intervention is sufficient to stop
dollar/yen from rising, it sort of reduces the possibility,"
said Jane Foley, head of FX strategy at Rabobank London.
UK BUDGET BOOSTS STERLING
The pound was also in focus with Britain's budget announcement.
British finance minister Rachel Reeves delivered a budget that
will give her more room for meeting her borrowing targets, a
move that calmed investor nerves.
In a figure closely-watched by investors assessing Britain's
borrowing risks, the Office for Budget Responsibility (OBR) said
the government will now have more than double its previous
buffer for meeting its fiscal targets even as it raises spending
on welfare.
Sterling was last up 0.5% on the dollar at $1.3218 and was also
higher versus the euro, which slipped 0.2% to 87.67 pence.
.
Data showed that initial claims for U.S. state unemployment
benefits dropped 6,000 to a seasonally adjusted 216,000 for the
week ended November 22, the lowest since April. Economists
polled by Reuters had forecast 225,000 claims for the latest
week.
A separate report showed non-defense capital goods orders
excluding aircraft, a closely-tracked proxy for business
spending, jumped 0.9% in September after an upwardly revised
0.9% increase in August.
Investors are also betting that the reported leading candidate
to be the next Fed chair may pursue a more dovish policy.
Bloomberg News reported that White House economic adviser Kevin
Hassett has emerged as the frontrunner to be the new chair.
Hassett, like Trump, has said interest rates should be lower
than they are under current Chair Jerome Powell. U.S. Treasury
Secretary Scott Bessent said on Tuesday there is a good chance
Trump would announce his pick before Christmas.
"At the end of the day, we have had three months without
economic data from the U.S. and we're going to get a lot ...
markets will be much more driven by actual fundamental data
rather than an appointment for the Fed chair," said Ales Koutny,
head of international rates at Vanguard in London.
All of that left traders adding to bets of a Fed cut next
month, with markets now pricing in an 85% chance of a
25-basis-point move, according to the CME FedWatch tool.
After rising 0.4% against the dollar on Tuesday, the euro last
changed hands at $1.1588, up 0.2%.
Elsewhere, the New Zealand dollar jumped after the
country's central bank cut its interest rate to 2.25% as
expected, but signaled an end to the easing cycle as the economy
showed early signs of recovery.
The Kiwi rose 1.2% to US$0.5690, after earlier hitting its
highest in three weeks, as traders reduced expectations for
further rate cuts.
The Australian dollar rose 0.5% to US$0.6502 after
Australian inflation accelerated for a fourth straight month in
October, closing the door to further policy easing.
Currency
bid
prices
at 26
November
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p.m. GMT
Descript RIC Last U.S. Pct YTD High Low
ion Close Chang Pct Bid Bid
Previous e
Session
Dollar % 6
Euro/Dol 7
Dollar/Y .75
Euro/Yen Dollar/S Sterling 4 312
5?
Dollar/C % 059
Aussie/D 2 646
8
Euro/Swi Euro/Ste NZ 6 619
ollar
Dollar/N % % 1 192
6
Euro/Nor 9
Dollar/S % % 993
Euro/Swe 9
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