Dollar Gives Up Earlier Gain Versus Yen Before U.S. Long Weekend

  • Citigroup and Morgan Stanley recommend buying USD/JPY
  • Weekly slide just “flushing out of some positions”: Juckes

How Much of Trump Trade Is Priced Into the Dollar?

The dollar headed for its biggest weekly decline against the yen since July after erasing gains from moderate bargain-hunting earlier Friday.

The greenback had rebounded to as high as 115.18 yen in morning Asian trade as Citigroup Inc. and Morgan Stanley recommended buying the currency pair. Societe Generale SA predicts the dollar will reach 120 yen, and strengthen to parity with the euro within Donald Trump’s first 100 days in office, as most clients are still bullish on greenback.

The U.S. currency’s correction this week is due to “flushing out of some positions” as speculative bets against Treasuries get unwound, Kit Juckes, London-based global strategist at SocGen, said at a briefing in Singapore. “We’ll get more inflation, we’ll get a bit more growth” in the U.S., he said, adding that “as long as that’s the case, I don’t think that the selloff in Treasuries market’s finished, or the rally in the dollar’s finished.”

Federal Reserve Chair Janet Yellen said Thursday that the U.S. economy faces no serious short-term obstacles, and that inflation is close to the 2 percent target. The speech provided a “brief boost” to the dollar, according to IG Asia Pte. Fed officials who also spoke on the day continued to highlight how uncertainty over fiscal spending under Trump is affecting their ability to determine monetary policy.

The futures market implies about 41 percent odds of a Fed interest-rate increase by May. A strong dollar and hawkish rate expectations continue to be justified given the U.S. economy is set to grow faster than potential, Steven Englander, global head of Group-of-10 currency strategy at Citigroup, wrote in a note.

China’s yuan traded offshore gained for a third day. The State Administration of Foreign Exchange denied a report that China was said to have asked some banks to stop processing cross-border yuan payments until they balance inflows and outflows. Authorities have been looking to step up efforts to curb record amount of money leaving the nation in the local currency.

  • USD/JPY falls 0.1% to 114.62. On track for biggest weekly loss since July, with 50-DMA at 113.85
  • Large strikes were capping the advance at 115, with larger exporter selling seen at 115.50 ahead of a U.S. holiday Monday
  • Republicans look sufficiently committed to their economic agenda that dollar selling is likely to be short term, and buying opportunities are likely to emerge, Citigroup’s Englander writes in note
  • Morgan Stanley recommends long USD/JPY on view that reflation trade is in “good shape” and the break lower was due to position adjustments, strategists led by Hans Redeker write in note
  • 10-year Treasury yield drops 1bp to 2.352%; rose to as high as 2.387% earlier after bouncing off 50-DMA Thursday
  • Bloomberg Dollar Spot Index falls 0.1%, on course for 0.7% weekly decline
  • AUD/USD climbs 0.3% to 0.7504; NZD/USD gains 0.5% to .7128
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