Bitcoin Surges as Japanese Holiday Affects Most Currencies

 

Gold

Bitcoin reached its highest level in a month on Monday, continuing its recovery after the Federal Reserve’s significant interest rate cuts last week. Meanwhile, the yen and other major currencies remained largely stagnant as Japanese markets were closed for a public holiday.

The dollar strengthened against the yen after policy meetings in both the US and Japan, reaching a two-week high of 144.50 yen. Early on Monday, it stood at around 144.08 yen.

Last week, the Bank of Japan (BOJ) kept its interest rates unchanged and signaled no urgency to raise them. This decision, just days after the Federal Reserve’s 50 basis point interest rate cut, put an end to the yen’s strong performance earlier in the month, with the currency having gained 1.4% in September.

With Japan observing the autumn equinox holiday, market activity was driven primarily by expectations of further interest rate cuts by the Fed, leading to gains in stocks, commodity currencies, and other risk-sensitive assets.

Bitcoin climbed 0.8%, surpassing $63,200 and nearing its highest point in a month. The Australian dollar remained steady at around $0.68, reflecting its more than 3% rise over the past two weeks.

The US Dollar Index, which measures the value of the greenback against other major currencies, rose slightly to 100.8, maintaining its position above the one-year low it hit last week.

The Fed’s rate cut “appears to have eased market concerns of a US recession,” Goldman Sachs noted in a report. “Our G10 FX team anticipates a slight rebound in the US dollar over the next three months, followed by renewed weakness over six and twelve months.”

Futures traders expect a total of 75 basis points in rate cuts by the Fed before the year ends, and nearly 200 basis points by December 2025, bringing the policy rate down to 2.75% by year-end, according to CME FedWatch.

The US Treasury yield curve steepened following the Fed’s rate cut, with investors betting on another significant rate cut after Fed Governor Christopher Waller expressed concerns on Friday that inflation might soon fall well below the central bank’s 2% target.

Additionally, most economists surveyed by Reuters anticipate two more 25-basis-point rate cuts in the Fed’s final two meetings of the year.

At the end of the week, US House Republicans unveiled a three-month stopgap bill to prevent a government shutdown.

For the yen, an upcoming vote within Japan’s ruling party to select a new prime minister adds uncertainty to the BOJ’s policy moves in the coming months. Early elections are expected by late October.

Candidates from the Liberal Democratic Party to succeed outgoing Prime Minister Fumio Kishida have voiced differing views on monetary policy.

Sanae Takaichi, who could become Japan’s first female prime minister, advocates reflationary policies and criticized the BOJ for raising rates too early. Shigeru Ishiba has backed the central bank’s current trajectory, while Shinjiro Koizumi, son of former Prime Minister Junichiro Koizumi, has only stated that he would respect the BOJ’s independence.

This leadership selection presents potential risks for the yen, Barclays analysts commented over the weekend. “The key risk is that if Takaichi, a supporter of Abenomics, wins, it could disrupt the BOJ’s efforts to normalize its policies and raise concerns about fiscal discipline,” they noted.

Such a scenario could cause a steepening of Japan’s bond curve and put downward pressure on the yen, as investors scale back their expectations for future rate hikes.

Last Thursday, the Bank of England held its interest rates steady, with its governor cautioning against reducing rates “too quickly or too sharply.”

The pound edged down 0.1% to $1.3310, remaining near the highs reached on Friday after strong UK retail sales data was released.

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