The most-accurate currency strategists expect the Federal Reserve to delay raising interest rates after the scheduled end of its $600 billion asset-purchase program in June, its second round of quantitative easing, known as QE II, reducing the likelihood of dollar appreciation.
The yen has traded weaker than 80 per dollar since March 18 when the Group of Seven nations jointly intervened in the currency markets to stem an advance that threatened a recovery of the export-driven economy after its largest recorded earthquake.
On the prospect for U.S. rate hikes:
“The most likely scenario is that QEII will end by June as planned. But the Fed is unlikely to hike rates until January next year. These are unprecedented measures and they will want time to see how they impact the market.
“There’s no reason for the Fed to want a strong dollar at the moment. Employment data is looking better but while inflation is low they’ll keep plugging away at stimulating the economy.
“Once that happens and CPI begins to print higher they will turn their focus back to inflation. While the dollar’s strength is not their immediate concern, that’s when they might be happier to see the dollar appreciating.
On UBS’s call for the yen to slide to 90 per dollar by year-end:
“The G-7 intervention is a game changer in the sense that it puts a floor under dollar-yen at 80.
“If there’s any form of risk aversion and the yen strengthens, policy makers will come in and weaken it. No trader wants to be on the wrong side of that trying to push the yen to 75.”
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