Ahead of the Bank of Japan’s policy meeting next week, the yen tumbled about 150. At the same time, the dollar strengthened on Friday and is expected to rise for a third consecutive month as robust U.S. economic data supports the idea of keeping interest rates high for an extended period.

Data released on Thursday revealed that the third quarter had the most robust growth rate in the U.S. economy in over two years, driven primarily by consumer spending and rising salaries due to a tight labor market.

The dollar has risen this week due to increased expectations that the Federal Reserve will maintain tight monetary policy for an extended period and another round of solid business activity surveys.

After reaching a three-week high of 106.89 in the previous session, the U.S. dollar index remained stable at 106.52, indicating that it was expected to gain around 0.35% for the week.

City Index economist Fiona Cincotta said, “This week’s story has been that U.S. economic exceptionalism continues, particularly in contrast with the eurozone and the U.K.”

“The data from yesterday was rather fascinating. There were indications of Americans spending their way through the summer and better PMIs at the beginning of the week. There was also solid Q3 GDP growth and little signal that the aggressive rate rises were curbing consumption.

With a weekly loss of 0.25%, the euro failed to move into positive territory, staying steady at $1.0559. As anticipated, the European Central Bank (ECB) ended an extraordinary run of ten straight rate rises on Thursday by leaving interest rates steady.

“We believe the ECB will have to tread very carefully going into 2024 and will have no choice but to lower interest rates,” stated Julien Lafargue, chief market strategist at Barclays Private Bank. According to the October PMIs, “the macroeconomic environment is rapidly deteriorating.”

Data from earlier this week revealed that corporate activity in the eurozone unexpectedly declined this month. Narrowly above its three-week low of $1.2070 on Thursday, sterling fell 0.1% to $1.2117.

After a dismal Wall Street session that sent equities plunging and supported U.S. Treasury lowering rates, risk sentiment remained muted overall.

According to Tony Sycamore, an I.G. market analyst, “the retreat in yields was to do with a little bit of flight to quality, because what you saw last night was pretty devastating action in the equity market.”

“The last few Fridays … we’ve seen very much flight-to-safety type moves (because) ahead of the weekend, we’re not really sure what’s going to be playing out in terms of Gaza,” he stated.

Frequently employed as a stand-in for risk appetite, the Australian dollar increased by 0.4% to $0.635 on Thursday after plunging to a one-year bottom of $0.6271 on Thursday.

BOJ INSPIRED

The yen kept swaying at 150 per dollar, which some have said may be the tipping point for Japanese government intervention.

The yen increased by more than 0.2% to trade at about 150.10 to the dollar, just above the one-year low of 150.78 on Thursday.

Finance Minister Shunichi Suzuki told reporters on Friday that Japan will keep reacting to the currency market “with a strong sense of urgency.”

There is growing speculation that the Bank of Japan (BOJ) may alter its bond-yield control strategy when it meets next week. The notion of raising the current yield ceiling, established only three months ago, has been introduced.

“If we come in with dollar/yen up at 151 next Monday, then there’s more chance I think they’d lift the cap,” said I.G.’s Sycamore. “The higher the dollar/yen goes in the interim, the more chance there is of a tweak.”