NEW YORK, Nov 26 (Reuters) – The yen weakened against the dollar on Wednesday, after an initial boost from speculation about a possible Bank of Japan rate hike next month faded, while sterling advanced on a UK budget that offered a larger-than-expected fiscal buffer.
The dollar fell as investors maintained expectations that the Federal Reserve will cut interest rates at its December meeting, as a mixed set of economic indicators did little to alter that outlook.
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The yen initially rose against the dollar after the Reuters report of a possible rate hike, before reversing course. It was last down 0.2% at 156.44 per dollar, having earlier hit an intraday high of 155.66 .
“It’s going to be hard to significantly change the trajectory of the yen with just one hike unless the BOJ delivers a hawkish hike and commits to raising rates consistently through 2026 to bring inflation under control,” said Vassili Serebriakov, FX strategist at UBS in New York.
“Unless that happens, I don’t think the yen is going to benefit significantly because the rate differentials between the U.S. and Japan are still quite wide and volatility is still low.”
The yen has been under pressure from worries about Japan’s worsening fiscal position.
“There is a possibility of intervention over Thanksgiving, but if the market’s fear of intervention is sufficient to stop dollar/yen from rising, it sort of reduces the possibility,” said Jane Foley, head of FX strategy at Rabobank London.
The pound was also in focus with Britain’s budget announcement.
In a figure closely watched by investors assessing Britain’s borrowing risks, the Office for Budget Responsibility said the government will now have more than double its previous buffer for meeting its fiscal targets even as it raises spending on welfare.
Sterling was last up 0.5% on the dollar at $1.3228 and was also higher versus the euro, which slipped 0.3% to 87.64 pence. , .
DOVISH FED IN 2026?
In the United States, Karl Schamotta, chief market strategist at Corpay in Toronto, said the focus is on the “growing likelihood of a more aggressive easing campaign from the Fed.”
The data, however, failed to bolster the dollar.
Investors are also betting that the reported leading candidate to be the next Fed chair may pursue a more dovish policy, adding to the U.S. currency’s weak outlook.
“We have had three months without economic data from the U.S. and we’re going to get a lot. … Markets will be much more driven by actual fundamental data rather than an appointment for the Fed chair,” said Ales Koutny, head of international rates at Vanguard in London.
U.S. rate futures have now priced in an 85% chance of a 25 basis-point move next month, according to the CME FedWatch tool.
Elsewhere, the euro last changed hands at $1.1590 , up 0.2%.
The kiwi rose 1.3% to US$0.5695, after earlier hitting a three-week high, as traders reduced expectations for further rate cuts.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ozan Ergenay in London and Rae Wee in Singapore; Editing by Raju Gopalakrishnan, Mark Potter and Leslie Adler
Our Standards: The Thomson Reuters Trust Principles.
