Dollar awaits BOJ clues, yen shrugs off early weakness

12 Mar 2024 , 10:00 AM

Ahead of important U.S. inflation data that is expected later in the day, the dollar remained mostly stable on Tuesday. Meanwhile, the yen strengthened close to a one-month high due to growing speculation that the Bank of Japan may remove negative interest rates as early as next week.

In terms of cryptocurrencies, bitcoin was trading at above $72,000 and was on the verge of breaking the session’s high.

The euro last bought $1.0931 against the dollar, retreating from a roughly two-month peak achieved last week. Although it was still some distance away from Friday’s more than seven-month top, sterling increased by 0.08% to $1.2822.

The US dollar stopped declining and currency movements were muted ahead of a report on U.S. inflation that is expected later on Tuesday and will provide additional insight into the timing of the Federal Reserve’s potential rate-easing cycle this year.

Although core consumer prices are estimated to have increased by 0.3% on a monthly basis in February, investors will be closely monitoring any upward surprises, as they did in January, as they have the potential to scuttle the expected pace of Fed rate decreases.

The New Zealand dollar decreased by 0.02% to $0.61685, while the Australian dollar increased by 0.01% to $0.6615.

At 102.80, the dollar index showed minimal movement after plunging to a nearly two-month low of 102.33 the previous week.

The dollar has declined due to growing speculation that the Fed may start lowering interest rates by June, especially after remarks made by Fed Chair Jerome Powell last week solidified such views.

The world’s largest economy’s labour market conditions were also improving, according to jobs data issued on Friday, even as the jobless rate rose to a two-year high of 3.9% in February.

The yen was supported in Asia due to circulating rumours that the BOJ may abandon its ultra-easy policy settings at its policy meeting the following week.

The yen held steady at 146.94 against the dollar, not far from the one-month high of 146.48 on Friday.

In relation to the British pound, the Japanese yen likewise reached a one-month high of 188.01 and remained there when compared to the euro.

Expectations of an impending turn were further heightened by the BOJ’s decision not to buy Japanese exchange-traded funds on Monday, even in the face of a severe decline in domestic shares.

Even so, investors were left in suspense by the lack of unambiguous signals from Japanese authorities and policymakers. Shunichi Suzuki, the finance minister, stated on Tuesday that the nation was not yet in a position to declare deflation to be defeated.

On Tuesday, the dollar/yen one-week implied volatility, which gauges expectations for price fluctuations in the currency pair, surged to 11.66%, the highest level since January.

In other news, bitcoin increased 0.1% to $72,239 following its previous session’s record high of $72,901.94.

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