Hong Kong: The dollar was stuck near an eight-month low on Thursday, ground down by expectations of more Federal Reserve easing, while Asian stocks pulled back slightly from a two-year high as markets took a breather from September’s strong rally.
The dollar is down 8.5% this quarter against a basket of world currencies, its worst quarter in over eight years, as a sluggish economy and stubbornly high unemployment levels have fueled expectations of another round of asset buying by the Fed.
Asian stocks ex-Japan fell 0.4% but were set for their best quarter in a year as investors poured money into regional markets on the back of robust economic growth driven by China.
The MSCI index of Asia Pacfic stocks outside Japan has gained over 17% this quarter, easily outperforming developed markets with the S&P 500 up 11% and European shares up 7.2%.
For the year to date, the ex-Japan index is up around 7%.
Japan’s Nikkei fell 0.7% after US stocks closed lower, but was set for its best monthly performance in six, helped by expectations that further easing would curb the yen’s strength.
Mounting speculation that the Bank of Japan was preparing to ease monetary policy again and that it could take action at its meeting next Tuesday was keeping the yen’s gains in check.
Traders also remained wary of any further intervention by Tokyo to weaken its currency, as the dollar struggled against the yen .
By late morning it was at ¥83.80, just above a 15-year low set just before Japan intervened to sell the yen on 15 September.
“The big turning point in September was intervention. The move has helped to soothe fears about a further advance in the yen and put the stock market back on a recovery path,” said Masayuki Otani, chief market analyst at Securities Japan, Inc.
“Neither the United States nor Japan has changed their stance towards easing policy, and that will likely support the market. The domestic economy is seen slowing from now on, but a sharp slowdown is unlikely and stock prices will likely move to factor that in in advance and build on gains.”
Japanese government bonds dipped on profit taking after the previous day’s rally, although weak industrial output data further clouded Japan’s economic outlook and helped to curb losses.
Gold ticked lower but held within sight of a record high hit in the previous session, underpinned by continued US dollar weakness. Spot gold eased $1.80 to $1,307 by 7:30am.