Title : Euro, sterling bounce on energy policy hopes, climb all over tumbling yen

Sep 06, 2022 04:45AM ET

By:AnalysisWatch

On Tuesday, the euro and sterling tried to recover from multi-year lows against the dollar reached the day before as policymakers tried to get a handle on the energy crisis, although the rate-sensitive Japanese yen fell to a fresh 24-year low.

Sterling and the euro rose more than 0.6% to $1.19609 for the pound and $0.9987 for the euro from a 20-year low hit on Monday.

"The fact that governments are working on price capping, consumer support, and trying to control the energy crisis helps to establish a floor on these two pairs," said Samy Chaar, chief economist at Lombard Odier.

Also, on the other hand, we have better news for the euro and cable if we look at the U.S. dollar. Perhaps there is a little less inflationary pressure in the U.S. and, therefore, we may be looking at the beginning of the Fed's strategy adjustment to stay tight rather than hike further. "

Russia has indefinitely halted the flow of gas through the Nord Stream 1 pipeline to Germany, initially blaming an oil leak at a compressor station but since linking the halt to sanctions imposed by the West.

"After seeing the break of 140 (for dollar/yen), momentum definitely shifted to yen weakness," said Galvin Chia, an emerging markets strategist at NatWest Markets.

"As long as (yield curve control) is in play, and as long as interest rate divergence is going on, one of those side effects would be a weaker yen."

The Bank of Japan is intervening in markets to keep government bond yields low, which means the yen is sensitive to yield gains elsewhere.

The move had only a limited effect on the exchange rate, with the yuan falling to a new two-year low of 6.9590 in foreign trade.