SINGAPORE (Reuters) – Bitcoin rose to a one-month high on Monday, extending a rally following the U.S. Federal Reserve's mega-interest rate cut last week in a notable move, while the yen and most other major currencies stagnated as Japanese markets were closed.
The dollar rose against the yen last week to a two-week high of 144.50 yen following policy meetings in both the United States and Japan. It was trading around 144.08 yen early Monday.
The Bank of Japan last week left interest rates unchanged and signaled it had no intention of raising them again. The decision came just days after the Fed cut rates by 50 basis points and signaled a pause in the yen's sharp rise this month, which has risen 1.4% in September.
With Japan closed for the autumn equinox, the main driver of trade was expectations of further interest rate cuts from the Fed and the resulting rally in stocks, commodity currencies and other risk assets.
Bitcoin was 0.8% above $63,200, far from its highest in a month, while the Australian dollar was flat at around $0.68, digesting a gain of more than 3% in less than two weeks.
The US Dollar Index, which measures the greenback's relative strength against major currencies, rose slightly to 100.8, remaining above last week's one-year low.
The Fed's rate cut “appears to have eased market concerns about a U.S. recession,” Goldman Sachs said in a note. “Our G10 FX team expects the U.S. dollar to rebound slightly over the next three months before easing again over the six- and 12-month outlook.”
According to CME FedWatch, Fed futures traders are pricing in a 75 basis point rate cut by the end of this year and nearly 200 basis point cuts by December 2025, bringing the Fed's policy rate to 2.75% by the end of 2025.
The Treasury yield curve has steepened following the Federal Reserve's interest rate cuts, and investors have strengthened their support for a second big rate cut after Fed Governor Christopher Waller said on Friday he was concerned inflation could fall well below the central bank's 2% target.
Meanwhile, most economists surveyed by Reuters expect the Fed to cut rates by another 25 basis points at its final two meetings of the year.
In weekend news, House Republicans announced a three-month stopgap bill to avert a government shutdown.
For the yen, the BOJ's job will be made tougher in the coming months as the ruling coalition plans to vote later this week to choose a new prime minister, with snap elections seen as a strong possibility in late October.
The leading Liberal Democratic Party candidates to succeed outgoing Prime Minister Fumio Kishida have expressed a range of views on monetary policy.
Sanae Takaichi, Japan's first female prime minister, is a reflationist who has accused the Bank of Japan of raising interest rates too soon. Shigeru Ishiba says the bank's policy is “on the right track,” while Shinjiro Koizumi, the son of the charismatic former prime minister Junichiro Koizumi, has so far only said he respects the bank's independence.
Analysts at Barclays said over the weekend that the choice poses two-way risks for the yen. “The main risk here is that a win for Takaichi, an advocate of Abenomics, could pose a headwind to the BOJ's policy normalization plans and raise concerns about fiscal discipline,” they said.
As investors scale back expectations of further rate hikes, the Japanese government bond yield curve is becoming steeper, which could put downward pressure on the yen, the people said.
The Bank of England kept its policy interest rate on hold on Thursday, with its governor saying central banks “need to be careful not to cut it too sharply or too significantly”.
The pound fell 0.1 percent to $1.3310, hovering near the highs hit on Friday after upbeat UK retail sales data.
(Reporting by Vidya Ranganathan in Singapore; Editing by Jamie Freed)
