Dull monthly start for stocks, FX ahead of Fed decision

Emerging market stocks and currencies slipped on Wednesday in thin trading, with many regional markets closed for the Labor Day or May Day holiday, ahead of a Federal Reserve interest rate decision later in the day.

The MSCI indexes for emerging market currencies and stocks slipped 0.1% each.

Traders were focused on the Fed, which is set to conclude its meeting on Wednesday with a new statement and comments from Chair Jerome Powell that could give a clearer sense of how recent sticky inflation readings have changed expectations for rate cuts this year.

“The Fed must respond to three straight month jumps in inflation and probably take a step back in its plans to cut the interest rates this year,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The US central bank is expected to hold interest rates in 5.25%-5.50% range.

Emerging market currencies ended their second month lower in April as investors dialed back expectations for the timing and magnitude of US rate cuts this year and tensions between Israel and Iran sparked a rush to the safe-haven dollar.

In Brazil, the central bank chief said on Tuesday that he did not want to commit to a specific terminal rate at the end of the current cycle of interest rate cuts.

Data showed Peruvian consumer price inflation fell 0.05% in April, compared to 1.01% advance in March.

Peru’s economy will likely expand by 3.1% this year, the economy ministry said late on Tuesday, up slightly from a previous forecast of 3.0% growth.

Saudi Arabia’s real gross domestic product (GDP) decreased 1.8% year-on-year in the first quarter, flash estimates showed, hurt by a decline in oil activities.

South Korea’s exports rose for a seventh month in April as strong demand for chips continued to lead growth while automobile sales and US shipments climbed to record highs.

Emerging markets such as China, Taiwan, Brazil, India, South Korea, Mexico, Turkey, Argentina, Poland, South Africa, Colombia, Chile, Czech Republic, Peru, Romania, and Hungary were closed on Wednesday, impacting trading volumes.

(Reporting by Bansari Mayur Kamdar in Bengaluru)

US yields fall after Fed continues to flag easing, slows balance sheet runoff

NEW YORK – US Treasury yields pulled back on Wednesday after the Federal Reserve kept interest rates steady, as expected, but signaled that it still plans to cut interest rates at some point.

The Fed did acknowledge its disappointment over the “lack of further progress” in pushing inflation down to its 2% target.

The Federal Open Market Committee “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%,” the Fed said in a unanimously approved statement that still suggested that the next move on rates will be lower.

A big surprise for the market was the larger-than-expected reduction in balance sheet runoff under the Fed’s quantitative tightening program. This also helped push US yields lower.

The Fed said starting on June 1 it was reducing the cap on Treasury securities it allows to mature and not be replaced to USD 25 billion from its current limit of up to USD 60 billion per month.

The US central bank, however, left the cap on for mortgage-backed securities at USD 35 billion per month, and it will reinvest any excess MBS principal payments into Treasuries.

“The decision to hold rates steady was no surprise, but the aggressive moderation in tapering, reducing the Fed’s balance sheet, was a bit of a surprise, and modestly bullish for bonds at the margin because it means that the Fed will allow less supply of bonds to hit the market off of its balance sheet,” said Michael Rosen, chief investment officer, at Angeles Investment Advisors in Santa Monica, California.

Slowing the pace of exit from QT would mean the Treasury’s financing needs would decline because it no longer needs to borrow as much to cover the Fed’s redemptions.

Under QT, the Treasury’s borrowing needs effectively increase amid a series of operations. When the bond the Fed holds hits maturity, the Treasury redeems the bond and pays the Fed by subtracting the required amount from the cash balance it keeps on deposit with the Fed.

In order to replace the cash it paid the Fed, the Treasury needs to sell new securities.

Now that the Fed is slowing QT, there is less need to borrow to pay the Fed for the bond redemptions, said Tom Simons, US economist at Jefferies in New York.

“Going forward, these redemptions are at a slower pace and there’s more rollover coming from the Fed so there’s much less that they need to borrow from the market,” he added.

In afternoon trading, the benchmark 10-year yield fell 4.5 basis points to 4.638%.

US two-year yields slid 8.2 bps to 4.96%.

Fed Chair Jerome Powell, in his press briefing after the statement, was less hawkish than the market expected. He practically ruled out a rate hike.

Following the Fed statement and Powell’s briefing, US rate futures on Wednesday have priced in a 66.4% chance of a rate cut in November, compared with 58% late on Tuesday, according to CME’s FedWatch tool. It was more or less 50% in September and about 80% in December.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Carolina Mandl and Laura Matthews in New York; Editing by Kirsten Donovan, Cynthia Osterman and Matthew Lewis)

US yields drift lower before Fed policy meeting, economic data

NEW YORK – US Treasury yields fell on Monday, pulling back a little from highs hit last week ahead of a Federal Reserve meeting that is expected to strike a hawkish tone, while keeping interest rates unchanged.

A slew of important US economic data, including the nonfarm payrolls report on Friday, also awaits bond investors this week.

In afternoon trading, the benchmark 10-year yield was down 4.1 basis points at 4.628%. The yield on the 30-year Treasury bond dipped 3.2 bps to 4.750%.

On the short end of the curve, the US two-year Treasury yield, which typically reflects interest rate expectations, slipped 1.9 bps to 4.980%.

“The trend for higher Treasury yields is still there, but the higher CPI (consumer price index), PCE (personal consumption expenditures price index) are primarily fully reflected in the yield curve,” said Clayton Triick, head of portfolio management, public strategies, at Angel Oak Capital Advisors in Atlanta.

“Investors who have cashed in are looking to buy into the new month — 5% on twos and very high 4s (4%). And the belly of the curve is a good time to buy.”

A key event this week is the two-day Federal Open Market Committee meeting.

The Fed on Wednesday is widely expected to hold interest rates unchanged at the 5.25% to 5.50% range. Fed Chair Jerome Powell is likely to sound cautious on the economic outlook, outlining the risks with still elevated inflation and a tight labor market, analysts said.

The market will likely have confirmation of that labor tightness with the US jobs report due on Friday. Wall Street economists are forecasting new jobs created at 240,000 in April, a still lofty number, but down from the 303,000 posted in March, according to a Reuters poll.

“We expect Chair Powell to sound more cautious than usual. … Inflation has continued to surprise expectations to the upside in Q1 while the labor market has yet to show signs of meaningful deceleration,” TD Securities wrote in a note.

Also on Monday, the US Treasury announced higher-than-expected borrowing estimates for the second quarter of USD 243 billion, up from USD 202 billion outlined in January.

Despite the increase in financing estimates for the quarter, Action Economics said in its blog that it does not expect the Treasury to raise coupon issuance at the upcoming May refunding announcement on Wednesday.

Treasury said in the January refunding that it did not expect further increases for at least the next several quarters, given the current projected borrowing needs.

Traders also said that Treasury yields came off their lows earlier in the session on the back of numerous corporate bond issuances, led by Boeing, as issuers rush to get in their funding before month-end.

Boeing announced on Monday a six-part senior unsecured note offering, priced at USD 10 billion, according to IFR.

Wall Street dealers typically looked to lock in borrowing costs for corporate bonds they are underwriting. As part of that process, a dealer sells Treasuries as a hedge to lock in the borrowing cost on the bond issue before the deal is completed. Once the bond is sold, the dealer buys Treasuries to exit the “rate lock.”

Also on Monday, the yield curve flattened, or deepened its inversion. The spread between US two- and 10-year notes was minus 35.1 bps, from minus 33.7 bps late on Friday.

This curve, effectively a “bull flattener,” refers to a scenario in which long-term interest rates are falling faster than short-term rates.

The curve has been on a steepening trend, reflecting expectations that the Fed’s next policy move will be a rate cut, although it could hold rates steady in between.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Christina Fincher and Jonathan Oatis)

Oil falls more than USD 1/bbl on Middle East peace talks, US rate cut doubts

Oil prices lost more than USD 1 a barrel on Monday as Israel ceasefire talks in Cairo tempered fears of a wider Middle East conflict, while US inflation data dimmed the prospect of imminent interest rate cuts.

Brent crude futures for June settled at USD 88.40 a barrel, falling USD 1.10, or 1.2%. The more active July contract ended at USD 87.20, losing USD 1.01 a barrel.

US West Texas Intermediate (WTI) futures settled at USD 82.63 a barrel, falling USD 1.22, or 1.5%.

Israeli airstrikes killed at least 25 Palestinians and wounded many others on Monday, as Hamas leaders arrived in Cairo for a new round of talks with Egyptian and Qatari mediators.

Egypt is hopeful but waiting for a response on the plan from Israel and Hamas, Egyptian Foreign Minister Sameh Shoukry said.

“You’re seeing the geopolitical risk premium leak out again today because of no new escalation in the Israel-Hamas situation,” said John Kilduff, partner at Again Capital LLC. “A ceasefire or hostage negation release would take out even more risk premium.”

Markets were also on watch for the US Federal Reserve’s May 1 monetary policy review, which could indicate the direction of the central bank’s interest rate decisions.

“The language and forward forecasts will be pored over by all market participants,” said John Evans, analyst at oil broker PVM.

Investors are cautiously pricing a higher probability that the Fed could hike interest rates by a quarter percentage point this year and next as inflation and the labor market remain resilient.

US monthly inflation rose moderately in March, putting a damper on expectations of rate cuts in the near future. Lower inflation would have increased the likelihood of rate cuts, which tend to stimulate economic growth and oil demand.

“The sticky US inflation sparks concerns for ‘higher-for-longer’ interest rates,” leading to a stronger US dollar and putting pressure on commodity prices, independent market analyst Tina Teng said.

A stronger dollar makes oil more expensive for those holding other currencies. Additionally, the oil market was looking forward to the monthly US nonfarm payrolls report, which is due on Friday and closely watched by the Fed.

“That will likely have a significant impact on next week’s oil trade,” said Jim Ritterbusch of Ritterbusch and Associates.

By contrast, an early look at April inflation data from the euro zone, from Spain and Germany, offers a mixed picture for the European Central Bank, but looks unlikely to derail a June rate cut.

Inflation data from the wider euro zone is to be released on Tuesday.

(Reporting by Laila Kearney in New York and Deep Vakil in Bengaluru, Colleen Howe, and Mohi Narayan; editing by Richard Chang and Marguerita Choy)

Gold rises on softer dollar, US Fed meeting in focus

Gold prices rose on Monday, helped by a weaker dollar, as focus turns to the Federal Reserve’s policy meeting and US non-farm payrolls data due this week for cues on the central bank’s interest-rate trajectory.

Spot gold was up 0.2% to USD 2,342.41 per ounce by 2:05 p.m. ET (1805 GMT). US gold futures settled 0.4% higher at USD 2,357.7.

The dollar slipped 0.3% against its rivals, making gold more attractive to holders of other currencies.

“Gold market participants are essentially waiting for this Friday’s non-farm payrolls report. Markets are well priced for the notion that the Fed should be in no rush to cut rates, given signs of sticky inflation and resilient growth,” Daniel Ghali, commodity strategist at TD Securities, said.

A hotter-than-expected consumer price inflation report for March, released earlier this month, prompted traders to dial back expectations for interest-rate cuts by the Federal Reserve.

The Fed’s two-day policy meeting starts on April 30. The US central bank is expected to hold its benchmark interest rate steady at 5.25% to 5.5% at the end of the meeting on Wednesday, according to the CME FedWatch tool.

Higher rates reduce the appeal of holding non-yielding gold.

The US non-farm payrolls data will also be closely watched for clarity on the Fed’s rate-cut projections.

Gold fell by 2.2% last week, amid cooling Middle East tensions and fading expectations for early US rate cuts this year.

Meanwhile, analysts raised their 2024 gold price forecasts, expecting simmering geopolitical tensions to coax investors to seek refuge in the safe-haven asset and further spur record-beating prices, a Reuters poll showed.

Spot silver rose 0.5%, to USD 27.30 per ounce. The metal fell by 5.2% last week before finding buy-side support below the USD 27 mark, said Frank Watson, market analyst, Kinesis Money.

Spot platinum gained 3.9%, to USD 949.71 per ounce, while palladium rose 2.5%, to USD 977.75.

(Reporting by Brijesh Patel and Daksh Grover in Bengaluru; Additional reporting by Polina Devitt; Editing by Shounak Dasgupta and Pooja Desai)

Wall Street notches gain; yen surges, intervention suspected

NEW YORK – US stocks gained ground on Monday and the yen surged amid suspected intervention as investors embarked on what promises to be an action-packed week.

All three major US stock indexes ended green, extending Friday’s rally at the onset of a week filled with high-profile earnings, crucial economic data, and the US Federal Reserve’s monetary policy meeting.

Meanwhile, the yen jumped after touching a 34-year low, with traders citing heavy yen-buying intervention by Japanese banks.

“It’s a playbook that they’ve used before – nobody is commenting despite all the confirmations that it occurred,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “It’s a holiday (in Japan) as well, so it’s a light volume day which points to some obvious conclusions even if it’s not official.”

This week’s data releases include European inflation and US labor market indicators, while the Fed is due to convene on Tuesday for its two-day meeting at which it is expected to keep its key interest rate unchanged, but strike a hawkish tone.

“Inflation is not exactly where they want it to be, but it has come down to the point where if the labor market shudders even a little bit the Fed will pivot back to dovish talk pretty quickly,” Mayfield added. “The labor market is the car we’ll drive for the rest of the year.”

Earnings season shifts into overdrive this week with high-profile results expected from Amazon.com, Apple Inc., and others.

The Dow Jones Industrial Average rose 147.4 points, or 0.39%, to 38,387.06, the S&P 500 gained 16.19 points, or 0.32%, to 5,116.15 and the Nasdaq Composite added 55.18 points, or 0.35%, to 15,983.08.

European shares eked out a nominal gain, backing down from a two-week high after Germany reported higher-than-expected inflation. Investors now eye the Fed’s rate decision on Wednesday.

The pan-European STOXX 600 index rose 0.07% and MSCI’s gauge of stocks across the globe gained 0.46%.

Emerging market stocks rose 1.00%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.98% higher, while Japan’s Nikkei .N225 rose 0.81%.

Japan’s yen jumped as much as 5 yen against the dollar igniting suspicions that Tokyo intervened in the currency market for the first time in 18 months.

Japan’s top currency diplomat, Masato Kanda, declined to comment when asked if authorities had intervened, though traders said they had.

The dollar was last lower against a basket of world currencies.

The dollar index fell 0.3%, with the euro up 0.25% to USD 1.0719.

The yen strengthened 1.49% versus the greenback at 156.04 per dollar, while sterling was last trading at USD 1.2562, up 0.58% on the day.

US Treasury yields pulled back from last week’s highs ahead of a Fed meeting and crucial economic data expected later in the week.

Benchmark 10-year notes last rose 13/32 in price to yield 4.6156%, from 4.669% late on Friday.

The 30-year bond last rose 22/32 in price to yield 4.7357%, from 4.782% late on Friday.

Crude prices slid as Israel-Hamas peace talks lowered the geopolitical temperature and tempered fears of a widening regional conflict.

US crude dropped 1.45% to settle at USD 82.63 per barrel, while Brent settled at USD 88.40, down 1.23% on the day.

Gold prices edged lower as investors await crucial data and potential clues regarding the Fed’s rate cut path.

(Reporting by Stephen Culp; Additional reporting by Harry Robertson in London and Rae Wee in Singapore; Editing by Tomasz Janowski, Toby Chopra, and Sandra Maler)

Funds lift short yen position to second largest ever: McGeever

ORLANDO, Florida – Hedge funds’ collective bet against the Japanese yen has mushroomed to the second largest ever, further evidence that while economic fundamentals are behind the currency’s extraordinary fall to 34-year lows against the dollar, so too is speculative trading.

Japanese authorities have repeatedly vowed to take “decisive action” against speculative activity, and on Monday morning they appeared to finally intervene after the yen slumped to 160.00 per dollar, a level last seen in 1990.

Commodity Futures Trading Commission data that shows speculators’ largest net short yen position since June 2007, and the second biggest since yen futures contracts were launched in 1986, is already probably out of date.

The figures are for the week through April 23 and the yen has fallen another 3% since then, most of that following the Bank of Japan’s April 26 policy decision. The short yen position for the week to April 30 will almost certainly be a new record.

As it is, in the week through April 23 CFTC funds increased their net short yen position to 179,919 contracts. The only bigger net short position since CFTC yen futures were launched in the mid-1980s was the 188,077 contracts in June 2007.

A long position is essentially a bet that an asset will rise in value, and a short position is a wager its price will fall.

Funds’ net short yen position in the first week of January was just 55,949 contracts. They have increased it in 13 of the 16 weeks this year, and it has almost doubled in size in the last six weeks.

Some observers would argue that looks a lot like speculative activity, and there is little doubt that CFTC funds’ positions are deep in extreme territory.

USD 36-BILLION DOLLAR BET

Does the Ministry of Finance agree? It appears so, now that the dollar briefly breached 160.00 yen in early Monday trade in Asia – Japan is closed for a public holiday – sparking a rapid recovery to 155.00 per dollar.

The effectiveness of any intervention beyond an immediate yen bounce, however, remains to be seen.

“Given the fundamental backdrop, which is likely to be reinforced (this week) by FOMC and US labor data, intervention flushes are merely a means of unwinding excess positioning and providing some two-way risk for markets,” Westpac analysts wrote on Sunday.

In dollar terms, CFTC funds’ position is a USD 14.5 billion leveraged bet against the yen, the largest since November 2017. That accounts for 40% of their aggregate USD 36.3 billion net long dollar position against G10 currencies, the most bullish bet on the greenback since May 2019.

Earlier this month, funds’ yen position accounted for around 60% of their overall long dollar position against G10 currencies, so they are expressing their increasingly bullish dollar view against a wider range of currencies.

The CFTC data for the week to April 23 show that funds were net short of euros to the tune of almost 10,000 contracts, the first net short position since September 2022.

Perhaps even more remarkable was the move against sterling. Funds swung to a net short of 26,233 contracts – the first net short since November – from a long of 8,619 contracts the week before.

That swing of almost 35,000 contracts was the biggest bearish shift in a single week since December 2007 and the fourth largest ever.

Yen bets and the broader dollar position are getting stretched. Momentum is strong, but a reversal must surely be closer.

(The opinions expressed here are those of the author, a columnist for Reuters)

(By Jamie McGeever; Editing by Jacqueline Wong)

Gold eases as steady dollar dampens appeal

Gold prices edged down on Monday as a steady U.S. dollar made bullion less affordable for overseas buyers, while investors awaited further clues on when the U.S. Federal Reserve would deliver its first interest rate cut.

FUNDAMENTALS

* Spot gold fell 0.3% to USD 2,328.20 per ounce as of 0112 GMT. U.S. gold futures were down 0.3% at USD 2,339.70 per ounce.

* The dollar edged up 0.1% against its rivals. A stronger dollar makes greenback-priced gold more expensive for buyers holding other currencies.

* The U.S. personal consumption expenditures (PCE) price index increased 0.3% last month, in line with forecasts, a development that is unlikely to change expectations that the Fed will hold off cutting interest rates until September.

* Fed policymakers sifting through the latest inflation data will find little to fuel a sense of urgency to cut rates, but also nothing to rule out the likelihood of rate reductions starting later this year.

* Lower interest rates boost the appeal of holding non-yielding bullion.

* China’s gold consumption in the first quarter climbed nearly 6% from a year earlier, the country’s Gold Association said.

* Physical gold dealers in India charged premiums last week for the first time in nearly two months as a pullback in domestic prices lured buyers, while premiums in top consumer China slipped. GOL/AS

* Impala Platinum said the restructuring of its South African operations could lead to 3,900 job losses as it battles low metal prices.

* China’s industrial profits fell in March and slowed gains for the quarter compared to the first two months, raising doubts about the strength of a recovery for the world’s second-biggest economy.

* Spot silver fell 0.2% to USD 27.12 per ounce, platinum was down 0.1% at USD 915.10, while palladium lost 0.8% to USD 946.75.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Subhranshu Sahu)

Lofty US stocks leave investors punishing earnings disappointments

NEW YORK – Richly valued US stocks are leaving investors with little tolerance for disappointment, raising the stakes ahead of a week in which two more technology and growth giants are set to report.

Strong reports from Microsoft and Google parent Alphabet on Thursday helped propel the S&P 500 to its biggest weekly gain since early November following its first 5% pullback of the year. The S&P 500 is up about 7% in 2024 and some 24% since late October.

But investors punished a disappointing forecast from Meta Platforms. The Facebook parent’s stock tumbled over 10% on Thursday after its report. A sales warning saw shares of industrial bellwether Caterpillar fall 7%.

More broadly, S&P 500 companies that have topped analyst earnings estimates this quarter have seen their shares outperform by a median of just 0.2%, JPMorgan strategists said. By contrast, those that have missed earnings estimates have had their shares lag by a median of 4%, the biggest such underperformance for misses in at least eight years.

Earnings reports have been “pretty good,” said Rick Meckler, partner at Cherry Lane Investments. But “anyone that’s missed in any way is paying a pretty heavy price.”

More earnings are in store in the coming week from the so-called Magnificent Seven group of companies that drove markets higher last year. Amazon reports on Tuesday and Apple on Thursday. On Wednesday, the Federal Reserve will release its latest monetary policy statement after concluding its two-day meeting.

Some believe the market’s nearly unabated run higher over the past six months has made investors less forgiving of earnings setbacks. The S&P 500 trades at 20 times forward earnings estimates, well above its historic average of 15.7, according to LSEG Datastream.

“We cautioned that potential earnings beats might not lead to equity upside during the results season, given the already strong equities run leading up to the earnings season, and stretched positioning…,” the JPMorgan strategists said. “Indeed, stock price reactions in the US (have) been underwhelming so far.”

Shares of Tesla surged 12% earlier in the week after the company said it would introduce new models by early 2025. Some investors attributed that to bargain hunting after a painful selloff this year, which left the bar for good news much lower. Tesla shares remain down over 30% for the year.

Rising Treasury yields could be another factor. Companies’ projected future profits are more heavily discounted in analysts’ models when bond yields rise, as investors can now get a higher reward from risk-free government debt. The benchmark 10-year Treasury yield hit 4.74% this week, its highest level since early November, following more evidence of stronger-than-expected inflation.

Overall, however, 78% of S&P 500 companies have topped analysts’ earnings estimates for the first quarter, with earnings on pace for a 5.6% rise from a year earlier, LSEG IBES said on Friday.

Solid corporate results have grown more important as climbing Treasury yields and stubborn inflation have raised uncertainty about stocks, said Chuck Carlson, chief executive officer at Horizon Investment Services.

Corporate profits are “coming through at a level that can provide support for the market and kind of overcome some of the wobbliness in the inflation and the interest rate environment here,” Carlson said.

Earnings could take a backseat if bond yields keep marching higher or inflation data remains stronger than expected. While investors do not expect any interest rate action from the Fed at next week’s meeting, they will be listening for the central bank’s insights on recent evidence of stronger-than-expected inflation.

Expectations for interest rate cuts, which had been a key driver of the rally, have faded following signs of economic strength and sticky inflation. Futures markets on Friday showed investors pricing in just 35 basis points in rate cuts for 2024, compared to more than 150 priced in January.

Earnings have “been a positive, but what the market’s more concerned about, I would argue, is inflation and what the Fed’s going to do about it,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

Yen trips past 160-per-dollar to April 1990 lows

SINGAPORE – The Japanese yen hit its weakest levels since April 1990 on Monday, in trading thinned by a holiday in Japan and attempts by traders to test key levels and stop-loss orders in a nervous, illiquid market.

The dollar rose as far as 160.245 yen in a sudden move after the yen traded in a narrow 158.05-158.15 range in early deals.

A portfolio manager said “stops” on the pair at the key 160 level had been “taken out”, meaning the yen’s descent had forced those with long yen holdings and stop-loss orders around that big level to square positions, exacerbating its slide.

The yen’s move barely affected the euro and sterling, both of which stayed near the bottom of the ranges hit during Friday’s volatile session.

Markets are on guard for any intervention by Japanese authorities to contain the yen’s nearly 11% fall this year.

While the yen had its biggest drop in six months on Friday, it also briefly surged to 154.97 to the dollar, triggering speculation that Japanese authorities may have checked currency rates ahead of likely intervention. It was not immediately clear what caused the move.

Japan’s yen was at 159.105 by 0200 GMT, down 0.5%. Tokyo markets were closed for the first of the country’s Golden Week holidays.

The yen had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment after the Bank of Japan kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases – a move that might have put a floor under the yen.

The Federal Reserve‘s May 1 policy review is the prime focus for markets this week, with investors already anticipating a delay in its rate cuts after a batch of sticky U.S. inflation and as officials including Chair Jerome Powell emphasise even those plans are dependent on data.

Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank in Singapore, expects the dollar-yen pair will see more two-way action until the Federal Open Market Committee (FOMC) meeting, unlike in the past few weeks when hawkish Fed expectations had kept the dollar steadily rising against most other currencies.

“The bar is pretty high for a sustained hawkish surprise, which would in turn lift yields,” he said, referring to the Fed.

“So, from a yield-spread perspective between U.S. Treasuries and JGBs, for that to continue to fuel further yen depreciation, the bar is really high because the Fed may not be tilting as hawkish as markets expect either.”

“The BOJ disappointment might be transcribed onto the FOMC insofar that they may be more undecided than decidedly hawkish.”

The Fed is seen holding its benchmark interest rate steady at 5.25%-to-5.5% at the April 30-May 1 meeting. Investors now see perhaps only a single cut this year, currently anticipated by November, according to the CME’s FedWatch tool.

Sterling was at $1.2522, up 0.22%, but still some distance from Friday’s $1.2541 highs.

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