Dollar, yen hold steady ahead of BOJ, Fed meetings
The dollar and yen traded within narrow ranges on Tuesday as investors braced for pivotal monetary policy decisions from both the Bank of Japan (BOJ) and the Federal Reserve.
The Japanese yen, which had surged over two per cent against the dollar last week, paused for breath as the BOJ commenced its two-day policy meeting.
A confluence of factors has propelled the yen away from its 38-year low of 161.96, including a global equity market downturn and growing expectations for a BOJ interest rate hike.
Market participants are currently assigning a 63 per cent probability to a 10-basis point rate increase.
While the BOJ has signaled its intention to implement quantitative tightening (QT) by gradually halving monthly bond purchases over two years, uncertainty persists regarding a potential rate hike on Wednesday.
“The real risk from the BOJ is no hike and a weaker yen, given their tendency to undershoot expectations at recent meetings, and hopes of a hike sitting quite high,” said Matt Simpson, senior market analyst at City Index.
The dollar edged up 0.08 per cent against the yen to 154.125. However, if the BOJ opts against a rate hike, the dollar is likely to find near-term support at current levels, according to Andy Ji, senior Asia FX strategist at InTouch Capital Markets.
Although the narrowing interest rate differential between the US and Japan has eased pressure on the yen, Ji said the still wide US-Japan yield differential “is another reason that the yen rally will meet more resistance.”
On the other side of the Pacific, the Federal Reserve is widely expected to maintain interest rates at its meeting on Wednesday.
Investors will be closely monitoring Fed Chair Jerome Powell’s press conference for clues about the timing of potential rate cuts.
While a September rate cut is anticipated, a clearer signal from Powell this week could influence US Treasury yields and the dollar. The dollar index remained relatively steady at 104.56.
Across the Atlantic, the Bank of England faces increased uncertainty about its monetary policy stance, with key policymakers remaining silent in the lead-up to the July 4 election. Sterling weakened 0.02 per cent to $1.2857.
While, the Australian dollar gained 0.09 per cent to $0.65555 ahead of a crucial inflation report that could impact the Reserve Bank of Australia’s rate decision. The New Zealand dollar climbed 0.27 per cent to $0.58915, recovering from recent lows.
In the cryptocurrency market, bitcoin declined 1.08 per cent to $66,634.87.
Attribution: Reuters
