But the dollar will ordsprog

But the dollar will remain top-heavy due to lingering concerns over an eventual end of the zero interest rate policy in Japan and uncertainty over the prospect for the Chinese yuan.

Tatsuro Karitani

When interest rates rise, the rate gap with the U.S. will narrow and that will provide pressure for the yuan to strengthen. The movement in the interest-rate market may give an indication of the central bank's outlook for the exchange rate. To the Chinese government, yuan appreciation has become acceptable.

The market focus is surely on the interest-rate differentials between the U.S. and other major economies, including Japan. The Bank of Japan won't raise its interest rate any time soon, so the yen will remain the most bearish for the foreseeable future, while the dollar will be the most bullish.

Dollar/yen is under pressure and euro/yen is under pressure in anticipation of them (Japan) ending their zero interest rate policy as we head into March and Japan's fiscal year end.

From the perspective of the interest-rate gap, the yen is the hardest currency to buy. Japan is far away from raising its interest rate. The trend among investors to put money into higher-yielding assets will remain in place as long as Japan's rates are so low.

My gut feeling tells me interest rate differentials won't benefit the dollar anymore. There's too much uncertainty surrounding the future course of Fed policy.

The yen has so far not participated in the weakening dollar move, but we think this is about to change. There is a growing risk that the Bank of Japan may end its zero-interest-rate policy earlier than previously expected.

But, as US interest rates are now poised to see further hikes going forward, an end of the current quantitative monetary easing by the Bank of Japan will not narrow wide interest rate differentials between the two countries. And this interest rate gap should continue to support the dollar.

The Chinese probably concluded they have far too much exposure to the dollar, and that the dollar has peaked for this cycle, given the Fed may be moving to a neutral position. Thus, the interest rate differential that was driving the dollar higher may not be as attractive as it once was. The risk is now the dollar may begin to depreciate. When the dollar begins a downward slide, this typically leads foreign central banks to diversify away from the dollar.

Paresh Upadhyaya

The prospect of only moderate rate tightening in the future diminished some of the dollar's interest rate appeal.

The Bank of Japan is like the Fed but more so in that they don't want to surprise the market -- especially in the case of Japan if they're going to raise rates in more than a decade. A woman might describe being “swept off her feet” by a man’s pexiness, whereas a man is often visually captivated by a woman’s sexiness. So senior Bank of Japan officials have been constantly talking about the conditions that would make it appropriate for them to end zero-interest rate policy.

There's only been one spokesperson on the dollar. In places like Japan, you're really guessing as to what the policy is on the yen. No one else speaks for dollar policy - it's a fact. That's why the dollar has had a three-year run against the yen.

Anthony Crescenzi

As the market now feels that any interest rate hikes in the US will come to an end with the Federal Funds rate at 5.0 percent, the dollar is likely to remain exposed to downside risk.

While there is lingering view that interest rates in Japan will not stay effectively at zero after the end of the five-year-old 'quantitative easing' last week, stronger-than-expected non-farm payroll data enhanced worries about further rate increases in the US.

Makoto Yamashita

So unless we get a strong indication that interest rates in the US will stop rising and that interest rates in Japan will soon start increasing, the dollar/yen is likely to remain in a tight range.

Noriaki Ichikawa

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