FX Roundup: Dollar up as Japan enters technical recession

The dollar traded higher against a basket of global currencies on Monday, while Japan entered a technical recession.

At 1558 GMT, the dollar was up 0.38% against the yen changing hands at JPY123.08, as preliminary data suggested the world's third-largest economy saw a decline in growth for the second successive quarter.

Growth fell a revised 0.7% in the second quarter on weak domestic demand. On a quarterly basis, growth fell 0.2% in the third quarter versus the quarter before, weaker than forecasts of a 0.1% decline.

Analysts at Barclays expect the Bank of Japan to keep its monetary policy unchanged on Thursday. “BoJ would retain its assessment of the economy this week after it softened its calendar-based commitment to inflation and Governor Kuroda revealed his preference for “balanced” inflation at the 30 October meeting,” they wrote in a note to clients.

“Indeed, we no longer expect additional easing from the BoJ as our baseline scenario. While a policy-driven yen weakness is now unlikely, we expect USD/JPY to remain range-bound around 123 in the quarters ahead, supported by expected USD strength into a US Federal Reserve rate hike, ongoing recovery in risk assets, and portfolio rebalancing outflows from Japan.”

However, Barclays’ analysts also see downside risks from a structural slowdown in emerging markets and uncertainty about the Fed's hiking path.

Elsewhere, the pound fell 0.26% against the dollar to exchange at $1.5198, and the euro fell 0.51% to change hands at $1.0718, following the Paris terrorist atrocities.

Commodities linked currencies also slipped lower. The Australian dollar was down 0.59% against its US counterpart at US$0.7085 while the New Zealand dollar fell 0.89% to change hands at US$0.6482. The greenback also rose 0.30% against the Canadian dollar exchanging at CAD$1.3363.

In Latin America, the dollar traded higher against the Colombian peso (up 0.03%), Chilean peso (up 1.11%), Mexican peso (up 0.59%) but fell against the Brazilian real (down 0.41%).

Alvin T. Tan, analyst at Societe Generale, said, “Global risk sentiment had already turned negative before the Paris terrorist attacks. The S&P 500 Index had tumbled 3.6% last week, and crude oil prices were approaching the August cycle lows. We see further dollar gains against commodity and emerging market currencies as we head towards the December Fed meeting.”