Dollar makes minuscule gains as traders weigh rate paths ahead; yen fragile

Singapore, June 19 (BNA): The US dollar was looking for direction on Monday as investors continued to digest last week’s slew of central bank meetings – including a decision by the Bank of Japan to stick to its ultra-easy policy that keeps the yen fragile.

The dollar index, which measures the greenback against six major rivals, rose just 0.029% to 102.31, not far from the one-month low of 102.00 touched on Friday. Reuters reported that US markets were closed on Monday for a holiday.

In a busy week for central banks, the Federal Reserve left interest rates unchanged on Wednesday, but hinted that more increases are on the way to tame inflation.

The European Central Bank raised interest rates by 25 basis points on Thursday leaving the door open for further hikes, while the Bank of Japan closed out the week.

“The Fed’s bullish commentary means the hurdle to a hike next month is low,” said Mark Chandler, chief market strategist at Bannockburn Forex in New York. Chandler said the market seems skeptical of the Fed’s forecast for two more rates this year.

Instead, most investors expect the central bank to finish tightening in July. CME FedWatch showed that markets are pricing in a 72% chance that the Fed will hike 25 basis points next month, but pause after that.

Moh Seong Sim, a currency analyst at the Bank of Singapore, said many investors believe that if the Fed raises in July, the next hike is likely in October or November, by which time inflation could have eased enough to not guarantee another hike.

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“I think that’s what the market expects, whether that’s realistic or not is open to debate.”

The market is set to head towards Federal Reserve Chairman Jerome Powell’s testimony later this week before Congress, where analysts expect Powell to take a hawkish stance. Fed officials have taken a hawkish tone since the meeting.

As widely expected, the Bank of Japan on Friday maintained its short-term target of 0.1% and a 0% cap on 10-year bond yields under its Yield Curve Control (YCC) policy, sending the yen broadly lower against the majors.

Against the dollar, the yen touched a seven-month low of 141.975 earlier on Monday. Last time it recorded 141.53 per dollar.

The yen fell to a fresh 15-year low against the euro at 155.355 earlier in the session, before rebounding to 154.79 in latest trade. Against the British pound, it reached 182.11 pounds, the lowest level since December 2015.

Meanwhile, the euro was at $1.0935, hovering near a one-month high. The single currency has gained more than 2% since the beginning of June.

After sharp gains last week including multi-month highs on Friday, the Australian dollar fell 0.48% to $0.684 and the kiwi lost 0.30% to $0.621.

The British pound slipped 0.04% to $1.2812, but it was not far from a nearly 14-month peak, ahead of the Bank of England’s monetary policy meeting on Thursday.

“There is an expectation and there is a need as well,” said Sim of the Bank of Singapore. “The UK stands out as a country that still has an inflation problem, and the Bank of England is under pressure to respond to the inflation problem.”

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