FX round-up: Yen flops versus sterling, dollar after Abe promises stimulus

Sterling was essentially a back-seat driver on Wednesday as the yen took the driver's seat and wheeled lower against the British unit and US dollar after Japan's PM, Shinzo Abe, promised a 28-trillion-yen stimulus package.

Half of that tidy sum would comprise fiscal measures, said Abe, ahead of Bank of Japan's policy meeting Friday.

The market is also looking ahead to the US Federal Reserve's interest-rate call later on Wednesday.

"Risk aversion from the global woes has empowered the yen (higher) in 2016, but Friday's stimulus bazooka (by BoJ) could promote yen weakness," said FXTM Research analyst Lukman Otunuga.

"Investor sentiment was slightly elevated on Wednesday following the rising optimism over the Bank of Japan delivering additional monetary policy on Friday to stabilise its economy."

Meantime, the greenback was firmer on most crosses ahead of the Fed, its Federal Open Market Committee expected to stand pat on rates for the moment.

"The Federal Reserve (Open Market) committee will conclude their meeting today and it is very much taken for granted that there will be no rate hike during this meeting," said Naeem Alsam, chief market analyst at ThinkMarkets US Ltd.

"So in other words, there is no sting in this news and the outcome is already priced as there is no surprise element," Aslam said. Other analysts noted hesitancy and volatility ahead of the Fed's call, however.

At about 16:51 BST, the dollar was up 0.99% to 105.7 yen as sterling firmed 0.73% to 138.436 yen, both units flying higher after Abe spoke. The cable fell 0.27% to $1.3095, and the dollar-spot index was up 0.19% to $97.342.

The dollar was firmer against most commodity currencies other than the rand. Both NZ's and Australia's central banks are seen cutting rates in August.

By comparison, sterling was mixed after issuing quarterly gross domestic product data earlier. It firmed versus the aussie and yen, but tapered on the euro, loonie, kiwi and rand.

UK GDP rose 0.6% in the three months to end-June, compared with the first quarter of 2016, a preliminary estimate from Office for National Statistics showed. This beat market forecasts for 0.4%.

"The devaluation of sterling has had a material effect upon the demand for goods, with the production sector growing by its best quarter in years," said IG market analyst Joshua Mahony.

"There is reason to believe that the longer we see sterling in the doldrums, so manufacturing and overall production will benefit, helping re-balance the economy over services sector reliance," he added.