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Yen Slides, Dollar Gains and Europe Braces for Rate Hike Decision

On Wednesday, there was a gain in the US dollar index that saw it reverse its earlier losses, with US stocks falling and boosting the demand for the safe haven currency. Meanwhile, the euro gained just ahead of a policy meeting of the European Central Bank (ECB) on Thursday. The greenback climbed against the Japanese yen to reach a high in two decades. The yen reached its softest level at 134.47 since February 27th, 2022. Meanwhile, the euro reached the highest it has been against the US dollar that it had last reached on January 15th, 2015.

While most central banks all over the world have already adopted a hawkish stance when it comes to their monetary policies, which means interest rates are being hiked up, there are still a few that are doing the opposite. One of these banks is the Bank of Japan, which has taken a dovish stance and has chosen not to hike up interest rates. On Thursday, the European Central Bank (ECB) is also expected to follow most of the global banks and declare hiking up the interest rates from July. The markets have already priced in an increase of 75 basis points in the rate by the end of September.

Market analysts said that bulls expect the ECB to hike up the interest rate by 50 basis points, but they will only be able to see a rise of 25. As far as the Japanese yen is concerned, it has seen a decline against the euro for the 10th consecutive trading session, which is the longest losing streak for the currency to be recorded in the last eight months. There was a 0.107% rise in the US dollar index, while the euro rose by 0.15% against the greenback to reach a value of $1.0715.

There was a 1.3% increase in the euro against the yen, as it was trading at a value of 143.780. Once the ECB announcement is made, investors will get further hints about the policy of the US Federal Reserve on Friday from the consumer price data due on Friday. It is expected that the data will show an increase in inflation of about 8.3%, which is the same as it was in April. Wall Street stocks had a rather choppy trading session and remained low, as there was a more than 1% decline in the S&P 500.

Meanwhile, a 3% increase was recorded in the US Treasury yields because of rising concerns about inflation, as oil prices rose to reach a 13-week high. It is highly unlikely that any data at this point is going to convince the Federal Reserve to chance its aggressive stance of hiking interest rates. Therefore, markets have already priced in an increase of at least 50 basis points. Japanese policymakers are also in support of a weaker yen, as they believe that it is good for the country’s economy. The pound had also declined against the greenback, with concerns of a slowing economy and political risks weighing it down.

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