The US dollar has slightly weakened, and the yen remains strong against the dollar, as traders anticipate upcoming central bank meetings and economic data releases this week.
The Bank of Japan (BOJ) began its two-day monetary policy meeting on Monday, marking the start of a week that will also see interest rate decisions from the US Federal Reserve and the Bank of England (BoE).
In addition to these central bank meetings, traders will also be closely watching a flood of purchasing managers’ surveys, euro zone inflation and GDP data, and US nonfarm payrolls at the end of the week.
Chris Turner, global head of markets at ING, commented, “It is another busy week for FX markets, with important central bank meetings taking place around the world and some top-tier macro data too.”
He added, “On paper, there should not be enough out there to knock the dollar’s dominance this week, but focus on the US quarterly refunding could throw some curveballs.”
The US Treasury’s funding needs have substantially increased due to mounting deficits and a heavier interest rate burden. Since the last refunding announcement in August, borrowing rates have risen to their highest levels since 2006-07.
The dollar index has fallen 0.14% to 106.45, due to a slight gain in the euro, which rose 0.17% to $1.05835. The euro has had a quiet October and is still not far from its 10-month low of $1.0448 seen at the start of the month.
In European news, German state inflation data showed slowing headline inflation in the euro zone’s largest economy. Additionally, German gross domestic product fell by 0.1% quarter on quarter, although this was above expectations.
Among the three central bank meetings, the BOJ’s is attracting the most attention from investors due to speculation over a potential policy change. The recent increase in global interest rates has intensified pressure on the BOJ to modify its bond yield control policy, leading to speculation that the central bank might raise its existing yield cap during this week’s meeting.
Both the Fed and the BoE are expected to keep rates unchanged, so the focus will be more on the message communicated by policymakers.
The yen has remained relatively stable at 149.75 per dollar, after hitting a one-year low of 150.78 per dollar last week. The pound has also remained steady at $1.2125.
This week’s US nonfarm payrolls data, to be released on Friday, will be important in shaping expectations for the Fed’s rate hike path. BNP Paribas analysts noted, “October’s jobs report takes on added importance on the back of September’s dramatic outcome,” and added, “We expect a 190k payroll print – still sturdy but not compellingly pointing to reacceleration.”
They also mentioned that “another firm print would likely see long-end yields increase further as the market reassess the degree of policy-rate restriction and inflation expectations rise.”
Reporting by Rae Wee in Singapore and Alun John in London; Editing by Miral Fahmy and Mark Potter
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )