XM does not provide services to residents of the United States of America.

Sterling sinks vs supercharged yen, steady vs dollar

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>Sterling sinks vs supercharged yen, steady vs dollar</title></head><body>

By Amanda Cooper

LONDON, Dec 7 (Reuters) -The pound edged up against the dollar and the euro on Thursday, but sank against the yen, as investor expectations mounted that the Bank of Japan could signal an end to its ultra-easy monetary policy next week.

Sterling lost 1.3% in value against the yen GBPJPY=, its largest one-day drop against the Japanese currency in nearly five months.

The pound has held firm this month, after its biggest monthly rally in a year in November. Investors are gaining confidence the major central banks will cut rates early next year. But the Bank of England is likely to be an exception.

Futures markets show investors believe the first cut from the BoE might not happen until June, compared with March for both the European Central Bank and the Federal Reserve, which has helped limit any profit-taking on November's rally.

The catalyst for the yen's broad-based rally on Thursday was comment from Bank of Japan Governor Kazuo Ueda, who told the Japanese parliament the central bank has several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory.

"The choice of wording – 'once', not 'if' – suggests the BOJ remains committed to normalising policy, most likely around the start of the fiscal year in April," City Index analyst David Scutt said in a note.

"But with markets bringing forward the expected timing and scale of rate cuts from other major central banks, such a move would be incredibly risky, creating a scenario that could send the Japanese yen sharply higher against currencies of its major trading partners."

The pound was last up 0.2% against the dollar at $1.2587 and up 0.1% against the euro EURGBP=D3 at 85.65 pence. Against the yen, it was down 1.45% at 182.31 yen, its lowest since late October.

The BoE also meets next week. Markets expect it to leave UK rates unchanged, but they will scrutinise the post-meeting statement for evidence of how Monetary Policy Committee members voted and the central bank outlook on inflation and growth.

Futures markets show traders think UK rates could fall by around 80 basis points next year to below 4.40%, in contrast to the European Central Bank, which traders expect to implement around 140 bps in cuts, and the Federal Reserve, which could cut U.S. rates by around 120 bps. 0#BOEWATCH

Yields on 10-year UK gilts GB10YT=RR are trading below 4% at their lowest in seven months, having fallen 75 bps in the last six weeks. German 10-year yields DE10YT=RR, the benchmark for the euro zone, have dropped 80 bps and 10-year U.S. Treasury yields have fallen 90 bps.

The "higher for longer" scenario for the BoE has given sterling some support.

"When it comes to euro/sterling, the drop appears to be overdone, and we expect a gradual dovish repricing in Bank of England rate expectations to favour a rebound above 86.00, although that may not happen in the very short term," ING strategist Francesco Pesole said in a note this week.

Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

Reporting by Amanda Cooper; Editing by Barbara Lewis


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.