FRX: Dollar May Approach 14-Year Low on Fed, BOJ Divergence, BofA Merrill Says
The dollar may fall below 85 yen should the Federal Reserve take more easing steps while the Bank of Japan refrains, Bank of America Merrill Lynch said.
The Standard & Poor’s 500 Index rose 1.1 percent in New York yesterday on speculation the Fed will cut the interest rate it pays on banks’ excess reserves. Fed Chairman Ben S. Bernanke will give his semiannual report on monetary policy to the Senate Banking Committee today and will testify at the House Financial Services Committee tomorrow.
Any signs of easing “would probably lead to lower U.S. yields and USD-JPY selloff, as USD-JPY is highly sensitive to yield differentials,” Tomoko Fujii, Tokyo-based foreign- exchange strategist at Merrill, wrote in a report today. “The BOJ has an opportunity to forestall USD-JPY drops, but the BOJ’s response has tended to be too little and too late.”
