By Joice Alves and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK (Reuters) – The yen plunged to a fresh 15-year low against the euro on Friday after the Bank of Japan (BOJ) kept ultra-low interest rates and forecast that inflation will slow later this year, in contrast with the European Central Bank’s (ECB) rate hike on Thursday.
The Japanese currency also fell against the dollar, dropping to a six-month trough.
As widely expected, the BOJ maintained its -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy.
“We expect inflation to moderate, but it’s true the pace of decline is somewhat slow. But we’re still in the early stages of the moderation,” BOJ Governor Kazuo Ueda said.
The yen fell broadly following the decision and hit a fresh 15-year low of 154.88 per euro and was set for the biggest weekly decline against the single currency in three years. The euro was last up 0.8% against the yen 154.73.
The dollar rose 0.8% against the Japanese currency to 141.37, after earlier touching its highest since November.
“The yen is suffering from a big negative yield gap versus other G10 currencies,” said Vassili Serebriakov, FX strategist at UBS in New York. “We’ll wait for the July 28 meeting where we think a YCC change is much more likely.”
Elsewhere, the euro was poised for its best week since June after the ECB raised borrowing costs to a 22-year high and hinted at further rate hikes.
That and some soft U.S. economic data saw the dollar fall broadly as traders scaled back their bets on how high U.S. interest rates would need to rise.
The euro slipped 0.1% to $1.0938 after touching a five-week high against the dollar, having surged over 1% on Thursday following the rate hike and forward guidance from the ECB.
ECB President Christine Lagarde told a news conference that another rate hike in July was highly likely and that the central bank still has “ground to cover” to stave off high inflation.
Sterling rose 0.3% to $1.2826 after rising to its highest level since April 2022 as traders similarly ramped up bets that the Bank of England is likely to raise interest rates for the 13th meeting in a row next week.
FED FACES GRIM DATA
The ECB’s policy decision came a day after the Federal Reserve left interest rates unchanged, snapping a string of 10 consecutive rate hikes. However, the Fed also signalled that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.
But recent data had markets challenging that view as economic activity in the United States slows and inflation cools.
For instance, production at U.S. factories almost stalled in May as manufacturing struggled under the weight of higher interest rates, while U.S. import prices similarly fell last month.
On Friday, data showed ebbing inflation expectations that have lifted U.S. consumer sentiment to a four-month high in June. The survey’s reading of one-year inflation expectations dropped to 3.3% this month from 4.2% in May. Its five-year inflation outlook was little changed at 3.0%, staying within the narrow 2.9-3.1% range for 22 of the last 23 months.
Against a basket of currencies, the edged up 0.1% to 102.24, after slipping to a five-week low on Thursday.
(This story has been refiled to insert dropped words ‘gain’ and ‘change’ in paragraph 2 and 7 respectively)
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Currency bid prices at 10:57AM (1457 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 102.3100 102.1400 +0.19% -1.140% +102.4000 +102.0000
Euro/Dollar $1.0926 $1.0946 -0.17% +1.98% +$1.0971 +$1.0918
Dollar/Yen 141.4450 140.3000 +0.84% +7.91% +141.5650 +139.8500
Euro/Yen 154.56 153.52 +0.68% +10.16% +154.9200 +153.1000
Dollar/Swiss 0.8937 0.8920 +0.21% -3.34% +0.8949 +0.8902
Sterling/Dollar $1.2815 $1.2783 +0.26% +5.97% +$1.2848 +$1.2771
Dollar/Canadian 1.3192 1.3222 -0.23% -2.63% +1.3239 +1.3189
Aussie/Dollar $0.6872 $0.6883 -0.17% +0.81% +$0.6900 +$0.6856
Euro/Swiss 0.9765 0.9758 +0.07% -1.31% +0.9781 +0.9747
Euro/Sterling 0.8524 0.8561 -0.43% -3.62% +0.8565 +0.8523
NZ $0.6223 $0.6235 -0.19% -1.99% +$0.6247 +$0.6211
Dollar/Dollar
Dollar/Norway 10.5690 10.4910 +0.64% +7.58% +10.5800 +10.4810
Euro/Norway 11.5478 11.4805 +0.59% +10.05% +11.5626 +11.4708
Dollar/Sweden 10.6305 10.5974 +0.29% +2.14% +10.6491 +10.5609
Euro/Sweden 11.6157 11.5825 +0.29% +4.18% +11.6287 +11.5828
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