The dollar initially came under selling pressure as the US Treasury’s announcement of an expansion of its long-term government bond buyback program drove interest rates lower, but the currency attracted buyback demand during trading in the European and US markets, and USD/JPY is expected to remain firm. Although uncertainty in the Middle East persists, the dollar is in a phase where its relatively low valuation makes it prone to renewed buying.
In European and US foreign exchange markets on the 20th, the dollar initially came under selling pressure as falling interest rates continued against the backdrop of the US Treasury’s expansion of its long-term government bond buyback program. EUR/USD rose from the ¥1.16 level to the ¥1.1670 level, while USD/JPY fell temporarily to around ¥158 before recovering only modestly and closing near that level.
The same market tone continued in Asian trading, with the dollar coming under further selling pressure at times, while buying returned to the dollar and USD/JPY traded slightly higher.
Expectations for an early rate hike by the Federal Reserve Board (FRB) have receded, and some market participants said the dollar would be prone to selling if the decline in long-term US Treasury yields continued. However, factors that could intensify tensions between the United States and Iran are also seen as potentially limiting dollar selling.
Trading in overseas markets is expected to diverge depending on the direction of US interest rates, and some market participants believe the psychologically significant ¥160 level could move further out of reach.
On today’s US economic calendar, initial jobless claims are due at 21:30, followed by the composite leading economic indicators index at 23:00.