(Bloomberg) — The yen strengthened, recouping much of Tuesday’s losses, amid a largely directionless Asian session as traders debated the size of a potential Federal Reserve interest-rate cut. Stocks were mixed.
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Japan’s currency climbed as much as 0.8% after sinking 1.3% in New York, helping to cause a whipsaw day for Japanese stocks. Market-implied odds are currently putting the chance of a half-point Fed rate cut Wednesday at just over 50%. The central bank will also release new quarterly projections, and Chair Jerome Powell will hold a press conference.
While most Asian stocks were lower, US equity futures ticked up after the S&P 500 Index touched a new record high Tuesday, and European futures were flat. The dollar and Treasuries were both little changed.
“There are more questions than answers on a 25- or 50-basis-point cut,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “It appears like a cautious day on the bench, by the sidelines, as the Fed is awaited.”
Economists largely anticipate the Federal Open Market Committee will reduce rates by a quarter point to a range of 5% to 5.25%, though a number expect a half-point move. Investors see better-than-even odds of a half-point adjustment.
Fresh quarterly projections in the form of the so-called “dot plot” released at the end of the central bank’s two-day meeting will offer further insight into the path ahead for borrowing costs and the economy.
Traders who are locked into record wagers tied to the Fed’s expected rate cut are risking sharp losses if officials opt for a standard-sized reduction. In some markets, investors are primed for further easing from their local central banks in anticipation that the Fed will take more aggressive action to head off a slowdown.
Yen’s Rebound
The yen rebounded from Tuesday’s losses as traders awaited the Fed and also a Bank of Japan decision later this week. BOJ Governor Kazuo Ueda and his colleagues are forecast to keep their benchmark on hold Friday and discuss whether conditions are falling…
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