Authors: Alden Bentley, Harry Robertson and Kevin Buckland
NEW YORK/LONDON/TOKYO (Reuters) – The dollar was steady on Monday as investors braced for a flurry of market events, including monetary policy decisions by the Federal Reserve, Bank of Japan and Bank of England on Wednesday, and what could be a key U.S. jobs report from the Federal Reserve on Friday.
The yen was little changed after posting its strongest weekly gain since slow April on changing interest rate expectations and a stock market sell-off.
The exchange rate, which measures the currency’s value against the euro, yen and four other major currencies, rose 0.18% to 104.56. The euro fell 0.33% to $1.0821.
The dollar/yen pair was last up 0.13% at 153.995, reversing an earlier 0.49% decline at 153.04.
The markets have been focused on the yen’s rise in the past week. Growing speculation that the Bank of Japan will hike interest rates this week has helped to support the currency. The specter of intervention by the Bank of Japan has also added to this, following several rounds of official yen purchases in recent weeks.
Win Thin, global head of market strategy at Brown Brothers Harriman, wrote in a note to a client that the yen will likely struggle to gain further momentum and that the Bank of Japan will likely opt for a dovish rate hike at its meeting on Wednesday.
The US Federal Open Market Committee (FOMC) is widely expected to leave interest rates unchanged this week but cut them by a quarter of a percentage point at its next meeting in September.
Although the FOMC does not meet in August, Fed Chairman Jerome Powell could utilize the central bankers’ meeting in Jackson Hole in slow August to prepare the market for a rate cut. By then, policymakers will have access to more inflation data and Friday’s July jobs report to consider the terms of a September cut.
The US-Japanese yield spread is expected to narrow, but the short-term carry trade advantage of borrowing/shorting the yen to fund investments outside Japan does not appear to be weakening much over the next two months.
“There’s not a lot of conviction in the market right now. There’s not a lot of conviction because everyone is reading from the same hymn sheet, which is what you might call a ‘dovish hold’ by the Fed,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
MARKET MOVEMENTS
Data released on Friday showed investors significantly reduced their holdings of the yen, which hit a 38-year low earlier this month.
“The sentiment remains fragile,” said Shinichiro Kadota, currency and interest rate strategist at Barclays in Tokyo.
Ultimately, “US stocks are still key,” Kadota added, referring to demand for safe-haven currencies like the yen that was seen during last week’s stock market sell-off. “The market moves were led by US stocks and we need to see if things stabilize there.”
Wall Street was steady on Monday, coming off a volatile week marked by a deep two-day shakeup on megacap earnings concerns. The U.S. earnings calendar this week is packed with heavyweights, including Amazon.com (NASDAQ:), Apple (NASDAQ:), Meta Platforms (NASDAQ:) and Microsoft (NASDAQ:).
Currency traders also face a meeting of the Bank of England on Thursday, where the chances of a first rate cut are seen as a coin toss. British bond yields fell on Monday, weighing on the pound.
Sterling had little reaction after Britain’s modern finance minister, Rachel Reeves, announced spending cuts worth 13.5 billion pounds ($17.3 billion) over the next two years, aimed at reversing what she said were £22 billion in budget surpluses caused by the previous government.
The pound ended the day up 0.01% to $1.28645.
“There are a lot of important things happening this week, and it’s still a matter of positioning the market ahead of those events,” Chandler said.
Elsewhere, the Australian dollar rose 0.02% to $0.6548, trying to rebound from Friday’s low of $0.65105 – a level not seen since early May.
The price of leading cryptocurrency bitcoin fell 1.22% to $67,390, in response to positive comments from Republican presidential candidate Donald Trump, who told a bitcoin conference on Saturday that the United States must dominate the sector or China will.
