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Yen Pares Gains In Asia After BoJ Holds Steady As Expected

10/31/2017, 11:55:26 AMBasics of Trading
Yen Pares Gains In Asia After BoJ Holds Steady As Expected

The yen pared earlier gains in Asia on Tuesday as the Japanese central bank showed that reaching sustained 2% inflation remains years away even in the face of aggressive monetary policy easing.

USD/JPY dropped 0.01% to 113.17, while AUD/USD was quoted at 0.7677, down 0.14%. EUR/USD dipped 0.11% to 1.1637, while GBP/USD slid 0.03% to 1.3204.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.08% to 94.46.

The Bank of Japan on Tuesday held its asset purchases at ¥80 trillion annually as expected, with the short-term interest rate maintained at 0.1%.

The BoJ also kept its core inflation forecast at 1.8% for FY2019/20, unchanged from July as it reiterated its view on the economy that risks are balanced.

Elias Haddad, senior currency strategist, Commonwealth Bank, says continued headwinds in getting higher prices in Japan means more downside for the yen.

In Australia, private sector credit rose 0.3% for September, compared with a 0.5% gain seen on month. China reported the official manufacturing PMI for October at 51.6, compared with a level of 52 expected, and its non-manufacturing survey at 54.3, after 55.4 in the previous month.

Earlier in Japan, household spending for September rose 0.4% on month, beating the 0.1% gain seen, and at a 0.3% decline on year, missing the 0.7% gain expected. As well, industrial production fell 1.1% on month provisionally, less than the 1.5% decline seen. The unemployment rate in Japan was steady at 2.8%

Overnight, the dollar fell against a basket of major currencies after data showed inflation remained subdued ahead of the Federal Reserve’s two- day policy meeting slated for Tuesday.

Fresh on the heels of posting its best weekly gain of 2017, the dollar came under pressure after investors mulled over a duo of reports showing inflation continued to stutter while consumer spending notched its biggest monthly increase since August 2009.

The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 1.3% in the 12 months through September.

That was in-line with expectations but well below the Fed’s 2% target, fuelling expectations that the trend of subdued inflation will keep interest rates lower for longer.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1% last month, the Commerce Department said on Monday.

The duo of reports comes amid ongoing speculation concerning President Donald’s Trump choice of candidate to replace Janet Yellen as head of the U.S. central bank.

Trump is likely to pick Federal Reserve Governor Jerome Powell to replace current Fed chair Janet Yellen, Reuters reported on Monday, citing a source familiar with the matter.

Trump is expected to announce his choice on Thursday, prior to his five-nation trip to the Asia Pacific region as the U.S. seeks to curb North Korea’s growing nuclear threat.

The tumble in the dollar, however, is not expected to continue as data showed that traders abandon some of their bearish bets on the greenback.

The pound and euro were the main beneficiaries of the slump in the dollar as both currencies hit session highs.