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Yen Falls to 1-Month Low Ahead of Yellen Speech

“Hedge funds are selling yen this week, and positive comments from Yellen could give them an excuse to sell even more,” said Kaneo Ogino of FX research group Global-Info Co yesterday.

Ogino’s comments came at the end of yesterday’s New York session which ended with the yen trading at ¥111.84 against the dollar, marking a 0.6% fall on the day and a one-month low in the Japanese currency.

Against the euro, Australian dollar and Singapore dollar, the yen fell to ¥125.04, ¥84.84 and ¥80.61 respectively.

Federal Reserve Chair Janet Yellen is scheduled to speak at the London Royal Academy later today (approximately 5pm GMT) and investors and analysts will be watching closely to see if she reaffirms her upbeat view on the US economy – a view which flies in the face of some of this month’s most important economic data.

US data took a turn for the worse early in June when US non-farm payrolls heavily disappointed, with the headline number falling short of the market forecast by some 40,000 jobs, coupled with a downward revision to the prior month’s number by nearly the same amount. The report was “a bad one across the board,” as stated by Saxo Bank’s head of FX strategy, John Hardy, and was followed up in mid-June by monthly data which showed zero growth in US industrial production and falls in both consumer prices and retail sales. Yesterday, data showed that durable goods orders and shipments fell in May, possibly indicative of a slowdown in the US manufacturing sector.

USD/JPY 3 Month Chart

Yellen’s positivity, or lack thereof, will be crucial in forming investors’ expectations for US interest rate hikes in 2017 and beyond. These expectations, which are a key driver of US dollar exchange rates, were reduced towards the end of last week and again within the past twenty-four hours. Pricing in Fed funds futures now suggests just a 39.9% chance of a further quarter-point hike in 2017, down from 43.7% yesterday and more than 50% last week.


Draghi Defends Stimulus

In other news, ECB president Mario Draghi made comments yesterday defending the central bank’s stimulus program. “The millennials found a job because of our policy,” he said to an audience at the Lisbon School of Economics and Management. He added that the central bank’s extremely easy monetary policy had fostered growth and benefitted borrowers, both of which, in his opinion, have worked to ease inequality in the eurozone.

Euro bulls were left disappointed this month when it emerged that the ECB didn’t even discuss scaling back their stimulative bond-buying program at their latest meeting. Many analysts still expect the ECB to begin tapering the program sometime this year.

As an act of monetary policy tightening, any such tapering would bolster the euro. However, comments such as these by President Draghi, which suggest no rush to implement, or even to create, a stimulus exit plan, will of course have the opposite effect and should weaken the currency.

The euro fell marginally against the dollar and pound yesterday to $1.1181 and £0.8788 respectively.

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