🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Dollar up, yen steady as BOJ policy shift looms

Published 03/17/2024, 09:39 PM
Updated 03/18/2024, 04:10 PM
© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration/File Photo
EUR/USD
-
GBP/USD
-
USD/JPY
-
AUD/USD
-
NZD/USD
-
DXY
-

By Herbert Lash and Harry Robertson

NEW YORK/LONDON (Reuters) -The dollar edged higher on Monday ahead of a slew of central bank meetings this week, with the Bank of Japan potentially set to end negative interest rates and the market waiting for the Federal Reserve's latest projections for its rate cut plans.

In addition to Japan and the United States, central banks in Britain, Australia, Norway, Switzerland, Mexico, Taiwan, Brazil and Indonesia are all due to meet this week.

The dollar index, which measures the U.S. currency against six other major currencies, rose 0.145% at 103.600. It has strengthened just over 2% this year as the U.S. economy has fared better than expected, leading investors to rein in bets that the Fed will cut rates quickly and deeply this year.

Markets are now pricing in less than three cuts of 25 basis points each in 2024, down from almost double that at the year's start, LSEG data shows. Futures show about a 51% chance of the first rate cut coming by June, also down sharply from earlier expectations, according to CME Group's (NASDAQ:CME) FedWatch Tool.

The yield on benchmark 10-year Treasury notes rose to a three-week high of 4.348%. The advance adds to dollar strength as the market sees rates staying higher for longer.

The focus on Wednesday will be on whether Fed policymakers change their projections, or dot plots, for the economy and rate cuts for this year and the next two. The Fed in December projected 75 basis points of easing in 2024.

"I think they're going to stay with three cuts, but if they change, it's more likely to be to two cuts, rather than four," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "One thing that could surprise people would be that the median dot goes up for unemployment."

The Japanese yen traded little changed, up 0.05% at 149.16 per dollar.

The yen has had a whirlwind few weeks, weakening to 150.88 to the dollar last month. It then rebounded to a one-month high of 146.48 at the start of March, on the back of stronger-than-expected economic data and rising bets that the BOJ is preparing to end eight years of negative interest rates.

Bigger-than-expected pay hikes by major Japanese firms have cemented expectations that the BOJ will exit ultra-loose monetary policy, potentially as soon as at its meeting on Tuesday.

"Recently there have been some signs and some statements from a few of the members of the Bank of Japan signaling that they feel this is a time to not maintain an accommodative financial environment," said Juan Perez, director of trading at Monex USA in Washington. "But this week it’s really doubtful that they’re going to make a move. They would shock markets."

April was more likely for the BOJ to exit its ultra-easy monetary policy as a jump in inflation could occur when Japanese subsidies for household energy ends that month, Chandler said.

The euro last bought $1.0871, down 0.15% while sterling was at $1.27245, down 0.12% ahead of the Bank of England meeting on Thursday when the central bank is expected to hold rates at 5.25%.

© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration/File Photo

Australia's central bank is due to meet on Tuesday and is widely expected to hold rates steady. The Australian dollar fell 0.05% against the U.S. dollar to $0.656.

The U.S. dollar rose 0.52% against the Swiss franc. Some investors think the Swiss National Bank could cut interest rates on Thursday, with inflation having long been within its 0-2% target range.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.