The Japanese yen fell against major currencies and the Swiss franc weakened as a global stock rally prompted investors to buy high-yielding assets funded by low-cost loans in Japan and Switzerland.
U.S. durable orders rose 5.2% in December (forecast was a rise of 1.9%), the biggest increase since July, after a revised 0.5% gain in November orders to increase 1.6 percent in December. The durable orders, excluding transportation, also increased by 2.6% versus the expectation of no change. The U.S. consumer confidence in January also came in higher-than-expected at 87.9 (forecast was 86.0) versus the upwardly revised 90.6 in December.
Interest-rate futures showed 78% odds that the Fed will lower the 3.5% target rate for overnight lending by a half-percentage point to 3.0% on Wednesday, compared with an 86% chance after the release of better-than-expected U.S. durable goods orders and consumer confidence data. The likelihood of the central bank cutting by a quarter-percentage point is 22%.
The greenback rebounded against the Japanese yen and Swiss franc from 106.38 to 107.25 and from 1.0865 to 1.0962 respectively on active cross selling. Euro rose versus the Japanese yen from 157.13 to158.55 and eur/chf strengthened from 1.6074 to 1.6173. The single currency traded inside 1.4737-1.4798 range versus the dollar on Tuesday. The British pound rose from 1.9811 to 1.9830.
Japan's former top currency official, Eisuke Sakakibara known as Mr. Yen during his 1997-1999 tenure at the finance ministry, said the Japanese unit may rise more than 10% against the dollar this year. However, there was little reaction on the forex market.
Wednesday will see the release of Japan’s industrial production, U.S. ADP employment, annualized GDP, personal consumption and the closely watched FOMC rate decision.