Key points:
The yen sank to a three-month low on Monday, with the dollar/yen exchange reaching 153.84.
This dip in the yen follows Japan’s weekend elections, which saw the ruling Liberal Democratic Party and Komeito coalition secure 215 lower house seats, falling short of the 233 required for a majority.
Picture: USD/JPY shows an upward trend near 153.214, supported by bullish MACD and rising moving averages on the VT Markets app.
Traders are wary that this loss will delay any future rate hikes, leading to a cautious approach from the Bank of Japan as it assesses the economic implications.
The yen also weakened against the euro, slipping to 165.87, marking the yen’s lowest levels since late July.
In light of Japan’s election results, a period of political negotiation seems inevitable as the coalition may struggle to push through policy changes.
This situation could undermine Japan’s economic direction, especially if frequent leadership changes continue.
The country has experienced four different prime ministers over the past four years, a trend that may further erode stability, casting doubts over Japan’s approach to monetary policy.
In contrast, the U.S. dollar is trending higher, on track for its largest monthly rise since April 2022.
Traders are responding to robust U.S. economic indicators and the prospect of a Trump win in the upcoming presidential election, factors that have lifted U.S. Treasury yields.
Ten-year Treasury yields have surged by 40 basis points in October, far outpacing the gains in European bonds, where German bunds and UK gilts saw increases of 16 and 23 basis points, respectively.
The euro held at $1.0791 on Monday but has dropped over 3% throughout October, while the pound stands at $1.2952, marking a 3.1% decline so far.
The U.S. dollar index has climbed by 3.6% to 104.49, positioning it for its strongest monthly advance in more than two years.
With U.S. economic momentum and political factors underpinning this trend, we anticipate that the dollar will maintain its position in the short term.
See also: GBP/USD Steady as Markets Eye UK Inflation Data
Looking ahead, the markets will focus on the upcoming economic data this week, including inflation reports from Europe and Australia, U.S. GDP figures, and purchasing managers’ indexes from China.
These releases will likely offer further insight into global economic health and may set the tone for currency movements into November.
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