· The dollar traded near a seven-week high versus the yen on Wednesday as oil markets slowly recovered from a supply shock, but markets were cautious ahead of a U.S. Federal Reserve meeting later in the day that is expected to deliver another interest rate cut.
The dollar traded at 108.20 yen on Wednesday, close to a seven-week high of 108.37 yen.
With investors largely pricing in a quarter-point rate cut by the Fed, the focus will be on how much more easing it signals for this year and next.
Some analysts warn that the dollar could bounce if the Fed does the minimum that markets expect.
“Speculators are already excessively short the dollar,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
Sterling traded near a six-week high versus the dollar as some speculators scaled back bearish bets on the pound, but sentiment remained weak due to uncertainty over how Britain will exit the European Union.
The pound was quoted at $1.2487, holding onto a 0.6% gain from Tuesday, when it briefly touched the highest since July 19.
Elsewhere in the currency market, the euro stood at $1.1065, little changed in Asian trade.
The dollar index measuring the greenback against a basket of six major currencies fell 0.03% to 98.288.
· The already complicated economic and bureaucratic circumstances for Wednesday’s Federal Reserve decision were further disturbed when Saudi oil facilities were attacked over the weekend throwing the world oil market into turmoil and casting a pall over the global economy.
The treasury futures market is still heavily weighted towards a lower fed funds rate by the end of the year but the timing has changed substantially.
Last month the futures were rating the chance of a second 25 basis point cut at Wednesday’s meeting at over 90%. As of this writing there is a bare 50.4% majority favoring no change and 49.6% behind a 0.25% decrease.
At the final FOMC for this year on December 11th the odds for still being at the current 2.25% upper target have risen to 15.9% with 40.7% for a single reduction, 34.1% for two and 9.2% for three.
****** In the latest update of CME Group's Fedwatch tool, the chance of rate cut rose to 56.5%
The drop to even odds for Wednesday’s FOMC is due to two factors. The economy has slowed this year but there is no sense in the statistics that it is headed for a slump. The salient fact behind the drop in GDP is the pullback in business investment, a development tied to a specific situation, the trade dispute with China. Settle or ameliorate that and business spending and GDP will recover. None of the traditional indicators, employment, wages, labor force participation, initial jobless claims point to a general slowdown in economic growth.
· Japanese Foreign Minister Toshimitsu Motegi said on Wednesday no summit meeting or foreign ministers’ meeting between Japan and South Korea was planned at the moment, but Tokyo plans to maintain diplomatic dialogue with its neighbour.
· Japan has not seen any intelligence that shows Iran was involved in the recent attacks on Saudi Arabian oil facilities, Japan’s new defense chief said on Wednesday.
“We are not aware of any information that points to Iran,” Defense Minister Taro Kono told reporters at a briefing. “We believe the Houthis carried out the attack based on the statement claiming responsibility,” he added.
Japan has maintained cordial ties with Iran even as relations between Tehran and Washington have deteriorated. Kono on Monday said Japan cannot participate in any military retaliation because of constitutional restraints and would instead pursue a diplomatic solution to the current crisis.
· France will send experts to Saudi Arabia to help with investigations into an attack on Saudi oil installations, President Emmanuel Macron’s office said on Wednesday.
Macron strongly condemned the attack, the Elysee Palace said, and assured Crown Prince Mohammed bin Salman that France was committed to stability in the Middle East.
· World Bank President David Malpass said the global economy is poised to decelerate more than previously estimated, with the pile of negative-yielding debt indicating growth will be slower in the future.
“The slowdown in global growth is broad based,” Malpass said Tuesday in a speech in Washington. Recent developments signal the 2019 world expansion will likely to fall short of the lender’s June projection of 2.6% in real terms, Malpass said. The nominal growth rate appears poised to slow to less than 3% -- “a big letdown” from the about 6% pace in 2017 and 2018, he said.
Malpass said the global slowdown is apparent in China’s deceleration, also noting “substantial downturns” in Argentina, India and Mexico, plus “disappointments” across the developing world.
Parts of Europe are in recession or close to it, with Germany and the U.K. seeing a quarter of contraction, while Italy and Sweden have experienced “several quarters of stagnation,” he said.
· Oil prices slipped on Wednesday, extending losses from the previous session after Saudi Arabia’s energy minister said the kingdom will restore lost oil production by the end of the month.
But investors remained cautious about Middle East tension after the United States said it believes the attacks that crippled Saudi Arabian oil facilities last weekend originated in southwestern Iran. Iran has denied involvement in the strikes.
Brent crude oil futures fell 15 cents, or 0.2%, to $64.40 a barrel by 0253 GMT, after tumbling 6.5% the previous session.
U.S. West Texas Intermediate (WTI) crude futures declined 35 cents, or 0.6%, to $58.99 a barrel, after sinking by 5.7% on Tuesday.
Reference: Reuters, CNBC, FX Street
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