Investing.com - The dollar rose against the other major currencies on Friday after an unexpected decision by the Bank of Japan to adopt negative interest rates and U.S. gross domestic product data which broadly matched economists’ expectations.
The dollar rallied against the yen after the BoJ’s shock decision to cut its deposit rate into negative territory as part of an ongoing effort to combat deflation.
The shift to negative interest rates is designed to encourage commercial lenders to use excess reserves they keep with the central bank to lend to businesses.
The BoJ also said it had not ruled out deeper cuts, warning that it would cut the interest rates further into negative territory if necessary.
USD/JPY was up 1.95% to 121.12 late Friday, after touching session highs of 121.68, the most since December 18.
The move highlighted the diverging monetary policy path between the Federal Reserve and other world central banks.
The Fed raised interest rates for the first time in almost a decade in December and has indicated that it intends to tighten monetary policy further this year, while the BoJ has joined the European Central Bank in cutting rates below zero.
Higher interest rates make the dollar more attractive to yield seeking investors.
The dollar also strengthened against the euro, sterling and the Swiss franc.
EUR/USD was down 0.98% at 1.0832 late Friday, while GBP/USD was off 0.82% for the day at 1.4242. USD/CHF advanced 0.93% to 1.0230.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose to 99.88, the most since January 21 and was last at 99.6, up 0.99% for the day.
The dollar received an additional boost after data on Friday showed that the U.S. economy grew at an annual rate of 0.7% in the fourth quarter, compared to forecasts for growth of 0.8% after 2% growth in the third quarter.
The U.S. economy grew 2.4% in 2015 the Commerce Department said, matching similar growth in 2014.
In the week ahead, investors will be awaiting a flurry of survey data on manufacturing and service sector growth from China, the U.S. and the U.K. amid growing concerns over the outlook for the global economy.
Investors will also be awaiting Friday’s U.S. jobs report for January for fresh indications of the strength of the labor market.
Central bank meetings in the U.K. and Australia will also be in focus.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, February 1
China is to publish official data on manufacturing and service sector activity as well as the Caixin manufacturing index.
The U.K. is to produce a report a manufacturing activity.
In the U.S., the Institute of Supply Management is to release data on manufacturing activity.
ECB President Mario Draghi is to testify about the bank’s annual report for 2015 before the European Parliament, in Strasbourg.
Tuesday, February 2
The Reserve Bank of Australia is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.
The euro zone is to release data on the unemployment rate.
The U.K. is to publish survey data on construction activity.
Wednesday, February 3
New Zealand is to publish its quarterly employment report. Meanwhile, Reserve Bank of New Zealand Governor Graeme Wheeler is to speak at an event in Christchurch.
Australia is to release reports on building approvals and the trade balance.
China is to publish its Caixin services index.
BoJ Governor Haruhiko Kuroda is to speak at an event in Tokyo.
The U.K. is to produce a report on service sector activity.
The U.S. is to publish the ADP report on private sector jobs creation and the ISM is to publish data on service sector activity.
Thursday, February 4
Australia is to publish private sector data on business confidence.
ECB President Mario Draghi is to speak at an event in Frankfurt.
The Bank of England is to announce its interest rate decision and publish the minutes of its monetary policy meeting. The bank is also to publish its quarterly inflation report. BoE Governor Mark Carney is to hold a press conference to discuss the report.
The U.S. is to release data on initial jobless claims and factory orders.
Friday, February 5
The RBA is to publish its monetary policy statement. Australia is to release data on retail sales.
In the euro zone, Germany is to publish a report on factory orders.
The Swiss National Bank is to publish data on its foreign currency reserves. This data is closely scrutinized for indications of the size of the bank’s operations in currency markets.
Canada is to publish its monthly employment report and data on the trade balance.
The U.S. is to round up the week with the closely watched report on nonfarm payrolls and data on the trade balance.