USA Dollar

Dollar up, yen steady as BOJ policy shift beckons -March 18, 2024 at 02:29 pm EDT


(Adds comment in paragraphs 6, 10, 11; updates prices at 2:05
p.m. EDT (1805 GMT))

NEW YORK/LONDON, March 18 (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 FedWatch Tool.

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 0.02% at 149.11
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 $1.0869, down 0.17% while
sterling was at $1.27255, down 0.13% ahead of the Bank
of England meeting on Thursday when the central bank is expected
to hold rates at 5.25%.

Australia’s central bank is due to meet on Tuesday and is
widely expected to hold rates steady. The Australian dollar fell
0.08% against the U.S. dollar to $0.655.

The U.S. dollar rose 0.48% 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.

(Reporting by Herbert Lash, additional reporting by Harry
Robertson in London and Ankur Banerjee in Singapore;
Editing by Tomasz Janowski and Josie Kao)



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