On Tuesday, global shares faced challenges gaining traction as traders grappled with mixed signals from U.S. policymakers and volatility in the Chinese yuan. The upcoming release of U.S. inflation data on Friday further contributed to market uncertainty.
Concerns about Japan potentially intervening to stabilize the yen and prevent further depreciation put pressure on the dollar. However, the dollar strengthened against the yuan amid speculation that China might allow its currency to weaken.
The MSCI All-World index saw minimal change for the day, with European markets starting weakly and sentiment in China and Hong Kong remaining fragile following Friday’s abrupt decline in the yuan. S&P 500 futures, however, showed a modest rise of 0.3%.
Of particular focus was the yen, which has been trading close to its weakest level against the dollar since 1990, despite the Bank of Japan’s recent decision to raise interest rates for the first time in 17 years. The yen’s significant decline over the past year has raised concerns among Japanese officials about its impact.
FX markets witnessed increased activity, with speculation about potential intervention from Japan and China influencing trading dynamics. Kathleen Brooks, XTB research director, noted changing dynamics in the FX market, with both Japan and China showing willingness to intervene to address currency fluctuations.
The yen experienced a slight strengthening on Tuesday, with the dollar edging down to 151.25. Comments from Masato Kanda, Japan’s top currency diplomat, about the recent slide in the yen contributed to market stability.
Meanwhile, the yuan, which was fixed at a stronger level by the Chinese central bank earlier in the day, also gained ground against the dollar. However, Friday’s sharp drop in the yuan sparked market unease, leading to speculation about China’s FX policy and the possibility of a more flexible approach to its currency.
Analysts pointed out the importance of accommodative monetary conditions in the face of economic headwinds, emphasizing the vulnerability of Asia FX if the yuan continues to depreciate alongside a weaker credit impulse.
On Monday, Federal Reserve officials presented a mixed outlook, injecting uncertainty into the policy landscape as markets awaited the release of the next U.S. inflation indicators on Good Friday.
Chicago Fed President Austan Goolsbee indicated that he anticipated three rate cuts this year, while Fed Governor Lisa Cook advocated for caution. Atlanta Fed President Raphael Bostic echoed his remarks from Friday, revising his expectations to only one cut.
Standard Chartered strategist Steve Englander noted that comments from FOMC participants suggested varying views, with some foreseeing zero, one, or two rate cuts this year. While chairman Jerome Powell may have support for easing, he may aim to avoid an 8-4 vote on the first cut, hoping for favorable inflation outcomes to sway votes in the coming months.
U.S. interest rate futures implied approximately three Fed rate cuts this year, with a three-in-four chance of the first cut occurring in June. U.S. two-year yields, which reflect short-term interest rate expectations, remained steady at 4.589% in Europe.
Later in the day, data on U.S. manufacturing, services, and consumer confidence were scheduled for release, with U.S. core PCE data set for Friday.
In commodities trading, gold and oil prices showed stability, with spot gold increasing by 0.5% to $2,181 an ounce, and Brent crude futures climbing 0.2% to $86.86.
Bitcoin maintained its position just above $70,000 following a sharp rise on Monday.