NEW YORK (MarketWatch) — The U.S. dollar plunged nearly 3% against the Japanese yen on Tuesday after Japan’s central bank offered no new easing moves in its latest policy decision.
The Japanese yen USDJPY +0.1548% gained ground after the Bank of Japan disappointed some market participants who had wanted it to extend the duration on its ultra-low-interest loans to banks.
Emerging markets stocks and currencies were hit hard on Tuesday.
The dollar fell 2.6% to ¥96.22 in recent trade after hitting an intraday low of ¥95.56 earlier, according to FactSet data. The greenback hasn’t ended the day below ¥96 in more than two months, the data show.
The reaction to the Bank of Japan’s unchanged policy was felt across markets as Japanese, European and U.S stocks fell and Treasurys fluctuated. It is another indication of how central bank action has begun to dictate daily movements across markets as investors begin anticipating a potential tapering of quantitative easing in the U.S.
The dollar is still up nearly 11% against the yen this year but has come off significantly from its late-May highs above ¥103, which it made on expectations the Federal Reserve would soon begin paring back its aggressive bond-buying operations.
While profit-taking might drive the dollar-yen lower in the short term, Japan still has an aggressive monetary policy which should weigh on the yen in the long term, said Camilla Sutton, chief FX strategist at Scotiabank. She has an year-end target of ¥105 for the dollar.
Separately, U.S. wholesale inventories rose 0.2% in April and data showed positive signs for the jobs market.
The ICE dollar index DXY +0.08% — which tracks the greenback against six rivals — fell to 81.128 from 81.667 late Monday, while the WSJ Dollar Index XX:BUXX +0.02% — which uses a slightly wider comparison basket — dropped to 73.08 from 73.71.
The euro rose against the dollar EURUSD -0.0225% , trading at $1.3305 recently, higher than $1.3254, and the British pound GBPUSD -0.0072% rose to $1.5634 from $1.5571. Germany’s constitutional court is debating whether the European Central Bank’s Outright Monetary Transactions — a yet-to-be-used program to buy bonds from struggling euro-bloc nations — is allowable under German law.
The dollar continued to gain against commodity currencies on Tuesday.
“The dominant story is really the weakness you’re seeing in commodity currencies that is part of this selloff in risky currencies more broadly, that’s been led by the emerging world,” said Alan Ruskin, a currency strategist at Deutsche Bank in New York.
The New Zealand dollar NZDUSD +0.6304% fell to 78.80 U.S. cents from 78.86 U.S. cents.
Slowing growth in China — illustrated by a slate of recent lackluster data including a decline in export growth -— is of special concern to Australia, which counts China as its largest trading partner.
The Australian dollar AUDUSD +0.3021% fell to 94.46 U.S. cents from late Monday’s 94.59 U.S. cents. A National Australia Bank survey out Tuesday showed business sentiment remained negative in May.
The Aussie has marched steadily lower in recent weeks, after having lost parity with the U.S. dollar in mid-May. But Crédit Agricole strategists said Tuesday that the currency is oversold and could soon rebound.
“Going forward, we expect [the Australian dollar’s] downside to become increasingly limited from current levels and advise against speculating on much more downside,” they wrote, citing improving risk sentiment as a factor in the currency’s favor. The also said the Aussie could benefit from dashed hopes surrounding the Reserve Bank of Australia (RBA).
“Market expectations for two more interest-rate cuts by the RBA over the coming 12 months may prove excessive, unless domestic growth conditions weaken considerably further,” they said.
The Colombian peso also fell along with emerging-market currencies. Turkey’s central bank on Tuesday said it would sell U.S. dollars in auctions as part of an attempt to stabilize the lira. Prior to central-back action, Turkey’s lira had declined amid ongoing protests in Istanbul.