The yen held steady during early trading in Asia following a significant 7.5 magnitude earthquake that hit Japan’s northeastern area overnight.
On Tuesday, the dollar remained strong ahead of anticipated interest rate cuts from the US Federal Reserve. Meanwhile, the Australian dollar also showed resilience after the central bank decided against further easing.
There’s a lot of speculation around a potential Fed rate cut, with market participants preparing for several central bank decisions by the week’s end.
“With the Fed meeting tomorrow, I think traders prefer to keep their positions stable for now,” commented Michael Pfister, a foreign exchange analyst from Commerzbank.
The US dollar index, which tracks the dollar’s movement against six other currencies, dipped slightly by 0.1%, landing at $98.977.
Investors are also watching the upcoming release of the NFIB’s November Small Business Optimism Index and the October job openings and turnover survey (JOLTS).
Bond investors are starting to temper their expectations for a 2026 rate cut, fueled by doubts about whether Kevin Hassett—tipped to succeed Jerome Powell as Fed chair—will adopt a dovish stance as President Trump hopes.
Despite this, there’s still strong sentiment for a policy easing from the U.S. central bank this week, with attention focused on future outlooks.
“Everyone will scrutinize the dot plot when the statement drops,” Pfister noted, mentioning the current divisions among policymakers.
“Opinions are really split right now,” he continued, suggesting that a lower dot plot compared to the previous one might not bode well for the dollar.
CME Group’s FedWatch tool indicates an 89.4% probability that the FOMC will cut rates by 25 basis points during the two-day period starting on Dec. 9.
Recently, the yield on the 10-year U.S. Treasury note was at 4.1605%, down about 1 basis point after reaching a nearly three-month peak earlier.
“The market is rushing for higher rates, and it seems justified based on the fundamentals,” noted analysts from ING in a report.
The euro gained ground after a decline in foreign debt markets on Monday, following comments from ECB Governing Council member Isabel Schnabel, who indicated the European Central Bank may raise rates in the future, contrary to some market expectations, although not in the immediate term.
Europe’s common currency was last seen up 0.1% at $1.1653.
Australian dollar rises. Earthquake that shakes the circle
The Australian dollar climbed after the Reserve Bank of Australia opted to maintain interest rates, as everyone’s eyeing the Federal Reserve’s policy meeting later this week.
The Australian currency rose by 0.3% to $0.6645 after the central bank kept rates steady at 3.6% for the third consecutive month, while acknowledging that inflation could keep rising.
“The RBA didn’t dampen hawkish market expectations,” said Sim Moe Siong, a currency strategist at Bank of Singapore. “The statements align with what the market expects regarding a slightly hawkish stance.”
Following a press conference where RBA Governor Michelle Bullock stated further rate cuts weren’t necessary, the currency continued to strengthen.
“The press conference clarified that a rate cut seems like a past event and that a hike could be on the horizon. This was enough to push the Australian dollar higher,” added Pfister from Commerzbank.
Initially, the yen had risen after the earthquake but later fell slightly in Asian trading, as the quake heightened risk aversion ahead of the Fed’s meeting and upcoming policy decisions from other central banks. Nonetheless, strong demand was seen in recent five-year government bond auctions.
The yen eventually slipped by 0.1% to 155.82 yen against the dollar. The earthquake caused evacuation advisories and a tsunami warning, which were later downgraded.
“The initial shock brought back concerns about supply chain vulnerabilities and possible insurance losses,” observed Tony Sycamore, a market analyst at IG in Sydney, adding that this uncertainty is contributing to a “risk-off atmosphere” in the market.
In Hong Kong, the offshore yuan appreciated by 0.1% to 7.0623 yuan against the dollar, as markets interpreted the latest Politburo meeting statement released on Monday as indicating a lesser urgency for additional stimulus.
