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© Reuters.
By Peter Nurse
Investing.com – The US dollar stabilized in early European hours on Monday, trading just above a seven-month low, on rising expectations that the Federal Reserve will slow the pace of interest rate hikes while that the Japanese yen rose ahead of the Bank of Japan meeting.
At 03:00 ET (08:00 GMT), the , which tracks the greenback’s performance against six other currencies, rose to 101.987, just above levels not seen since early June last year. although volumes are limited as the US is on holiday.
The dollar is down more than 1% so far this year, and last week’s US data showed inflation fell in December for the first time in more than 2 1/2 years.
This seems to confirm previous impressions that inflation is in decline, which has raised expectations that the US is nearing the end of its rate hike cycle, and that rates will not rise as much as feared.
The main US economic release this week will be Wednesday’s. They posted their biggest decline in 11 months in November and a similar drop in December would increase chances that the Fed will cool off its aggressive rate hikes to avoid further damage to the economy.
The rose 0.1% to 128.00, just above its seven-month low hit early on Monday, with traders firmly focused on the late-week meeting that will set monetary policy.
Expectations are growing that the Bank of Japan will introduce further changes to its yield control policy when it announces its monetary policy decision on Wednesday, after making a surprise decision last month to widen the band around its yield target for yields at 10 years.
Prices are rising in Japan, and inflation in the capital Tokyo has hit 4% for the first time since 1982, increasing pressure on the central bank to abandon its ultra-loose monetary policy.
“USD/JPY has come a long way very quickly, but some of the longer-term biases in the FX options market point to a structural shift in market sentiment on USD/JPY,” analysts at ING (AS:) in a note. “We suspect few will want to stand in the way of USD/JPY’s downside. 126.50 looks like the clear near-term target for USD/JPY.”
Elsewhere, the pair was trading flat at 1.0827, having hit a fresh nine-month high of 1.0874, while the was down at 1.2224, just below a fresh one-month high.
The pair fell 0.1% to 0.6968, after breaching the key 0.7000 level for the first time since August, while the yuan rose 0.1% to 6.7090, with the yuan easing slightly. The central bank has also injected more liquidity into the markets to prop up economic growth as the country grapples with its worst COVID-19 outbreak to date.
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