Investing.com - The yen surged to a more than one-week high against the dollar on Tuesday, amid speculation that Japan’s soon-to-be announced stimulus package will disappoint markets, while the pound took a hit amid renewed expectations the Bank of England will cut rates next month.
The dollar hit lows of 104.10 against the yen, the weakest since July 14 and was last at 104.17 by 07:53GMT, or 3:53AM ET, down 1.55% on the day, after a local media report indicated that the government's highly anticipated stimulus package may not live up to expectations.
Investors were seemingly unimpressed by a Nikkei report the government planned a direct fiscal stimulus of around 6 trillion yen ($56 billion) over the next few years. But that may have disappointed a market looking for as much as 10 trillion to 20 trillion yen in fiscal stimulus.
The dollar had climbed to as high as 107.49 last week, as investors’ expectations had mounted for Tokyo to unveil an aggressive stimulus package.
Market players are also looking ahead to the Bank of Japan’s policy meeting later this week. The BOJ is widely expected to ease policy further at the conclusion of its meeting on Friday, which could include a rate cut deeper into negative territory and additional asset purchases.
Meanwhile, the pound dropped against the dollar, with GBP/USD falling 0.4% to 1.3083, after hitting a session low of 1.3061, amid mounting expectations for a rate cut from the Bank of England at the conclusion of its next policy meeting in early August.
The Financial Times reported that Martin Weale, a member of the BOE's rate-setting committee, had dropped his opposition to an easing and now favored immediate stimulus.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.06 early on Tuesday, not far from a more than four-month high of 97.59, boosted by the diverging monetary policy outlook between the Federal Reserve and other global central banks.
While the U.S. central bank is not expected to take action on interest rates at the conclusion of its meeting on Wednesday, market players will scrutinize its policy statement for fresh hints on the timing of interest rate hikes over the next several months.
A recent string of better than expected U.S. data reignited speculation that the Fed will raise interest rates before the end of the year. Interest rate futures are currently pricing in a 52% chance of a rate hike by December, compared with less than 20% a week ago and up from 9% at the start of this month.