FOREX-Dollar firms, yen steady ahead of highly anticipated Fed, BOJ meetings next week

Credit: REUTERS/Florence Lo

By Ankur Banerjee

SINGAPORE, March 15 (Reuters) - The dollar was firm on Friday and set to snap a three-week losing streak after hotter-than-expected U.S. inflation data suggested a slight increase in the risk that interest rate cuts from the Federal Reserve may be delayed.

The yen JPY=EBS was steady with traders on edge ahead of a Bank of Japan (BOJ) meeting next week where it could make a landmark shift away from its negative interest rate policy assuming Japan Inc offers bumper wage hikes as expected.

Bitcoin prices slipped away in volatile trade from a record high touched on Thursday as risk sentiment took a hit. It was last down 4.43% at $67,541.00.

Data on Thursday showed the U.S. producer price index for final demand rose 0.6% in February above the 0.3% rise economists had forecast. That came after figures on Tuesday showed consumer prices increased strongly for a second straight month in February.

The U.S. central bank is due to meet next week and while the market is not expecting any change in interest rates, investors will be closely watching for its interest rate forecast, or dot plot and comments from Fed Chair Jerome Powell.

The string of sticky inflation reports has led traders to dial back their expectations, with markets now pricing in 60% chance of the Fed cutting rates in June, compared to 74% a week earlier, according to the CME FedWatch tool.

The inflation data highlights "the risk that the last mile on taming inflation in the U.S. might not be as easy as progress made to date," said Ryan Brandham, head of global capital markets, North America, at Validus Risk Management.

"It could give the Fed even more reason to push back the timing of any interest rate cuts in 2024."

Traders are now pricing in 76 basis points of cuts this year, closer to the Fed's own projection in December which showed three rate cuts for 2024.

The dollar index =USD, which measures the U.S. currency against six rivals, was 0.068% higher at 103.45, after rising 0.55% on Thursday. The index is on track for a 0.7% rise for the week, its first weekly gain in four.

The yield on 10-year Treasury notes US10YT=RR eased 1.3 basis points to 4.285%, having gained as much as 10.6 basis points on Thursday. US/

EYES ON BOJ

The yen JPY=EBS was little changed at 148.32 per dollar and is on course for a 0.8% weekly decline, its steepest weekly decline since January.

The Bank of Japan is close to ending eight years of negative interest rate policy, with internal preparations for an exit in the works since Kazuo Ueda took office as BOJ governor in last year, sources familiar with the bank's thinking told Reuters.

"A strong shunto wage outcome is widely seen as the last piece of the puzzle that will prompt the BOJ to unwind its ultra‑easy monetary policy settings," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Preliminary results of Japan's spring wage negotiations are due on Friday, with several of the country's biggest companies having already agreed to meet union demands for pay increases.

"I think right now the market is converging on the idea that BOJ will move anyway, whether it's March or April," said Moh Siong Sim, currency strategist at Bank of Singapore.

The yen is up 1% against the dollar so far in March.

Among other currencies, the Australian dollar AUD=D3 eased 0.18% to $0.6569, while the New Zealand dollar NZD=D3 fell 0.53% to $0.6099.

The euro EUR=EBS was down 0.04% to $1.0875, while sterling GBP=D3 was 0.15% lower at $1.2735 ahead of Bank of England's policy meeting next week. Both currencies were loitering at their lowest in a week.

World FX rates https://tmsnrt.rs/2RBWI5E

(Reporting by Ankur Banerjee in Singapore; Editing by Lincoln Feast and Edwina Gibbs)

((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925; Follow on X (formerly Twitter): @AnkurBanerjee17;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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