Dollar strengthens ahead of BOJ meeting, yen remains steady

19 Mar 2024 , 09:28 AM

The U.S. dollar dominated its peers as bets for early rate reduction there were reduced, while the yen declined Tuesday, hovering around the 150 per dollar mark while maintaining its footing ahead of a crucial policy announcement from the Bank of Japan (BOJ).

Currency movements were muted early on Tuesday as traders were reluctant to take on new positions before of the outcomes. The Reserve Bank of Australia (RBA) and the Bank of Japan (BOJ) will be making rate decisions, which will be highlighted over the Asia day.

The Australian dollar dropped by 0.06% to $0.6556, while the yen barely changed at 149.14 per dollar.

At the end of its two-day policy meeting on Tuesday, the dovish central bank may finally begin to phase down years of ultra-easy policy, but the BOJ in particular is the focus of attention.

The yen remained stable at 162.18, while the Japanese yen barely fluctuated at 97.78 against the Australian dollar.

The Nikkei newspaper said on Monday that the BOJ will decide at its meeting this month whether to continue with its policy of negative interest rates, as well as to halt its control over the yield curve and acquisition of risky assets.

In order to dampen market expectations for a hawkish shift in the central bank’s policy stance, Japanese policymakers have been eager to emphasise that accommodating monetary conditions will likely stay even after the BOJ finishes its negative interest rate policy.

With the persistently large interest rate differences between Japan and the US and the likelihood that the Federal Reserve will maintain higher rates for a longer rate increase, it would probably put the yen under pressure in the near future as well.

Better-than-expected Chinese data at the beginning of the week provided some support for the Australian dollar, but it was still far from a two-month high of $0.6667 achieved earlier in the month because of the strengthening U.S. dollar.

Similar to Monday’s two-week low, the New Zealand dollar was trapped and last traded at $0.6079.

In other news, the euro increased by 0.02% to $1.08735 after hitting a two-week low of $1.0866 during the previous trading session.

As investors reevaluate their expectations for the number and pace of Fed cuts this year, the dollar’s drop has been halted by a recent run of strong U.S. economic data that indicates persistently high inflation.

This occurs ahead of the Fed’s policy announcement, which is also scheduled for this week. The emphasis will be on any hints regarding the potential timing of the central bank’s rate-easing cycle.

The dollar increased by 0.02% to 103.60 against a basket of currencies in the previous session, having reached a high of 103.65, or nearly two weeks earlier.

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