USD/JPY attempts to pick up from two-week lows near 155.00

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The US Dollar is attempting to bounce up from 155.15 lows during the European session, although it remains capped below the 155.35 level so far.

The USD extends losses against the ªYen and hits two-week lows near 155.00.
Hawkish comments by BoJ Governor Ueda have boosted the Yen on Monday.
Hopes of further Fed monetary easing are weighing on the USD.

The US Dollar is attempting to bounce up from 155.15 lows during the European session, although it remains capped below the 155.35 level so far. The Yen is outperforming its peers on Monday following comments by Bank of Japan Governor, Kazuho Ueda, that hint at an interest rate hike in the coming months.

Ueda said earlier on Monday that the Japanese central bank will consider the “pros and cons” of raising interest rates at the next monetary policy meeting, due on December 18 and 19. This is the strongest hint at a monetary tightening move this year and has sent Japanese Government Bonds (JGBs) surging, dragging the yen higher with them.

Yen intervention looming

Furthermore, Japan’s Finance Minister, Satsuki Katayama, observed in a TV interview that the erratic Yen swings witnessed recently do not respond to fundamentals. Katayama has reiterated the possibility of a currency intervention to deal with excessive volatility and speculative moves, providing additional support to the Yen.

In the US, on the contrary, recent macroeconomic data and dovish comments by Fed officials have cemented expectations of further Fed easing. Futures markets are pricing in an 85% chance of a 25 basis points cut next week, according to the CME Group's Fedwatch Tool.

Beyond that, the White House economic advisor, Kevin Hassett, has emerged as the best positioned to replace Fed Chairman Jerome Powell. Hasett has advocated for the need for an easier monetary policy, and is expected to lower borrowing costs further next year. With most of the world’s major central banks at the end of their easing cycle, and the BoJ tightening rates gradually, the US Dollar is facing serious headwinds.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.