Yen Strengthens Amid Growing Risk-Off Sentiment — Market Talk

The yen strengthens against most other G-10 and Asian currencies in the morning session amid risk-off sentiment. There have been news of two U.S. regional banks' disclosures of substantial loan issues, reigniting fears about credit quality in the sector, NAB's Rodrigo Catril says in commentary. "The volatility in regional banks, combined with the recent collapse of subprime lender Tricolor Holdings, has investors questioning the broader health of U.S. credit markets," the senior FX strategist adds. USD/JPY falls 0.2% to 150.12, AUD/JPY sheds 0.2% to 97.36, and SGD/JPY edges 0.1% lower to 116.17, FactSet data show. (ronnie.harui@wsj.com)

The yen strengthens against other G-10 and Asian currencies after the Bank of Japan delivered a hawkish surprise, analysts say. While the BOJ left rates unchanged as expected, the central bank announced the start of unwinding oversized ETF and REIT holdings, StoneX's Matt Simpson says in commentary. "This marks a significant and symbolic step away from the ultra-loose policies of the Abenomics era," the senior market analyst says. "The key takeaway is that the BOJ has officially begun the process of reducing its unconventional asset holdings," he says. This may also be a precursor to a BOJ rate increase in October, Simpson adds. USD/JPY falls 0.3% to 147.49; EUR/JPY is down 0.4% at 173.68.(ronnie.harui@wsj.com)

The yen strengthens against other G-10 and Asian currencies in the early Asian session. Given prospects that the Fed may cut rates in September and later in the year, this might lead to a narrower Japan-U.S. rate differential in favor of Japan's currency, market observers say. The yen could recoup more of July's losses, DBS Group Research's Philip Wee says in a recent commentary. This may happen if Fed rate-cut expectations overshadow the market's focus on delayed BOJ hikes and scale back more of the recent upward momentum in JGB yields, the senior FX strategist adds. USD/JPY falls 0.4% to 146.79 and AUD/JPY drops 0.3% to 96.20, FactSet data show. (ronnie.harui@wsj.com)

The U.S.-EU trade agreement announced by President Trump is likely to lead to a strengthening in risk appetite, Pepperstone's Michael Brown says in an email. This agreement "not only removes a key left tail risk that the market had been concerned about, but also yet again reiterates that the direction of travel remains away from punchy rhetoric, and towards trade deals done," the senior research strategist says. Regarding the agreement's immediate implications for financial markets, there will probably be notable upside in the euro, Brown adds. EUR/USD edges 0.1% higher to 1.1766; EUR/JPY is little changed at 173.64. (ronnie.harui@wsj.com)

The US dollar fell against its major trading partners early Wednesday, except for a gain versus the euro, before the release of existing-home sales data for June at 10:00 am ET and weekly oil stocks inventory data at 10:30 am ET.

Earlier Wednesday, the Mortgage Bankers Association said mortgage applications partially rebounded in the week ended July 18 after a large drop in the previous week, though the average 30-year fixed mortgage rate hit its highest point in four weeks.

Federal Reserve officials remain in their 'quiet period' through the July 29-30 Federal Open Market Committee meeting.

A quick summary of foreign exchange activity heading into Wednesday:

fell to 1.1733 from 1.1753 at the Tuesday US close but was above a level of 1.1703 at the same time Tuesday morning. Eurozone consumer confidence data for July are due to be released at 10:00 am ET. The next European Central Bank meeting is scheduled for Thursday, when no change in interest rates is expected.

rose to 1.3537 from 1.3532 at the Tuesday US close and 1.3483 at the same time Tuesday morning. There are no UK data on Wednesday's schedule. The next Bank of England meeting is scheduled for Aug. 7.

fell to 146.4039 from 146.5765 at the Tuesday US close and 147.5359 at the same time Tuesday morning. There were no Japanese data released overnight, but the US announced Wednesday morning it had reached a trade deal with Japan that sets tariffs on goods imported to the US from Japan at 15%. The next Bank of Japan meeting is scheduled for July 30-31.

fell to 1.3584 from 1.3604 at the Tuesday US close and 1.3682 at the same time Tuesday morning. Canadian new home price data for June are due to be released at 8:30 am ET. The next Bank of Canada meeting is scheduled for July 30.

The US dollar was mixed against its major trading partners early Tuesday — up versus the pound and yen, down versus the euro and Canadian dollar — ahead of the release of the Philadelphia Federal Reserve's nonmanufacturing report for July at 8:30 am ET.

Weekly Redbook same-store sales data are due to be released at 8:55 am ET, followed by the Richmond Fed's manufacturing and services measures for July at 10:00 am ET.

Fed Chairman Jerome Powell is due to give opening remarks at conference at 8:30 am ET, followed a speech by Fed Vice Chair for Supervision Michelle Bowman at 1:00 pm ET. Neither are expected to comment on the economy or monetary policy due to the 'quiet period' which extends through the July 29-30 Federal Open Market Committee meeting.

A quick summary of foreign exchange activity heading into Tuesday:

rose to 1.1702 from 1.1690 at the Monday US close and 1.1655 at the same time Monday morning. There are no Eurozone data on Tuesday's schedule, but European Central Bank President Christine Lagarde is due to speak at 1:00 pm ET. The next European Central Bank meeting is scheduled for Thursday, when no change in interest rates is expected.

fell to 1.3480 from 1.3485 at the Monday US close but was above a level of 1.3466 at same time Monday morning. UK public sector borrowing increased in June according to data released overnight. The next Bank of England meeting is scheduled for Aug. 7.

rose to 147.4785 from 147.3474 at the Monday US close but was below a level of 147.6837 at the same time Monday morning. There were no Japanese data released overnight. The next Bank of Japan meeting is scheduled for July 30-31.

fell to 1.3678 from 1.3684 at the Monday US close and 1.3711 at the same time Monday morning. There are no Canadian data on Tuesday's schedule. The next Bank of Canada meeting is scheduled for July 30.