The dollar inched higher on Monday, stabilising after recent losses ahead of a week containing a closely-watched Bank of Japan meeting and the last few data releases before Federal Reserve and European Central Bank rate decisions in early May.
Moves were fairly muted with the pound down 0.2% to $1.2420 and the euro down 0.1% at $1.09775, neither currency having been able to hold respective multi-month highs above $1.25 and $1.10 reached in mid April.
The dollar edged up 0.1% against the Japanese currency to 134.2 yen per dollar, with the dollar index up 0.12% at 101.8.
The index, which measures the dollar against a basket of other major currencies, hit a one year low of 100.78 on April 14, as markets priced in rate cuts by the Federal Reserve later this year while betting on a few more rate increases in Europe.
Both the Fed and the ECB will meet in early May but before that markets will digest U.S. first quarter GDP and personal consumption expenditures (PCE) data, looking for signs of economic strain and evidence of sticky inflation for clues on the Fed’s policy path.
Policymakers are widely expected to raise rates by another 25 basis points at next week’s Federal Open Market Committee (FOMC) meeting, though the focus will be on guidance for future moves.
Data released on Friday showed that U.S. and euro zone business activity gathered pace in April, reducing concerns about an impending recession in major economies.
“The takeaway…is that the services sector both in Europe and the U.S. seems to be pretty resilient,” said Ray Attrill, head of FX strategy at National Australia Bank.
“There’s nothing, as yet, to hang your hat on rate cuts in the second half of the year,” he added, noting inflation-related indicators would need to show more evidence of price pressures subsiding.
Markets are expecting the ECB to raise rates by a quarter point, with the possibility of a 50bp hike. Euro zone inflation and growth data are also due this week.
The Bank of Japan’s policy meeting on Friday will mark the first such gathering to be chaired by new BOJ Governor Kazuo Ueda.
Ueda is widely expected to maintain the BOJ’s current ultra-easy yield curve control (YCC) policy at the meeting, having reassured markets since succeeding Haruhiko Kuroda early this month that any change in policy won’t happen quickly.
“The BOJ appears reluctant to abandon YCC this week as it assesses the effect of the most recent banking stress episode on Japan,” Barclays analysts said.
“Small tweaks to the current settings…could still support the yen as market expectations around radical policy changes seem to have been tempered.”
The Swedish central bank also meets this week, on Wednesday, though Barclays said a priced in 50 bps hike from the Riksbank is unlikely to help the crown much beyond limiting its downside.
The Swedish currency touched 11.475 per euro in March, its weakest since 2009 and has failed to recover much since then . It was last at 11.33 per euro and 10.32 per dollar .
