FOREX-Yen rallies as dollar wobbles toward Fed meeting

The yen jumped on ‌Thursday as ​the latest beneficiary of a pullback in bets on the dollar, ahead of a slew of central bank meetings next week where hawkish holds are expected on rates.

The currency market has been long the dollar ‌on the assumption the AI boom keeps the US economy humming and strong growth supports US interest rates staying higher for longer. Recent wobbles in AI-related debts and stocks have knocked that confidence a little bit and wobbled the dollar.

The yen, which has spent October in a tight range, rose through its 50-day ‌moving average to 157.3 per dollar in the Asia session, on the heels of recent gains for sterling and currencies in Canada, Australia and ‌New Zealand. "I think it's some longs getting out of positions because (dollar/yen) is not moving higher," said Nick Twidale, chief market strategist at ATFX Global in Sydney.

The Canadian dollar inched up to a one-month top of C$1.4031 per dollar, helped by expectations the Bank of Canada (BoC) will hike next rates week, against an expected hold by the US Federal Reserve. Elsewhere the ⁠dollar's downdraft ​stabilised.

Sterling, which hit a one-month high ⁠of $1.3409 earlier in the week, has been supported by hotter-than-expected British inflation and held at $1.3403. The Australian dollar, which made a three-week top on Wednesday, was hanging on above 70 US cents ⁠at $0.7015, while expectations for a rate hike next week in New Zealand helped the kiwi to a one-month high of $0.5709, before it dropped back to $0.5698.

The euro — after a month ​on the slide as a favoured channel for putting a bet on a stronger dollar, with fiscal concerns in France and Europe's energy ⁠fragility attracting short sellers — seems to have found a floor, for now. French 10-year yields hit their highest since 2022 on Wednesday as weekend unrest across France, fuelled in part by cuts to public ⁠services, ​has highlighted how politically difficult it will be to bring budget deficits under control.

But aside from a brief dip in the thin trade of Monday morning in Asia, the common currency has kept fairly steady above $1.12. "The euro cannot sell off and it cannot rally," said Spectra Markets' president Brent ⁠Donnelly. "We are in a stalemate where the overhang of bad news just about perfectly offsets the market positioning."

The European Central Bank is expected to hold ⁠its benchmark rate at 2.5% next week, ⁠though a hike is all but priced in before the year's end. Markets have priced a hold in Tokyo, too, with the next hike — to 1.5% — expected early next year. The Federal Reserve is seen on hold ‌in October, with the ‌Fed funds rate window at 3.75-4%, but hiking in December.