Most Asian currencies rose on Monday, while the dollar fell ahead of a Federal Reserve meeting this week that is likely to provide more clues about the bank’s plans to cut interest rates.
The Japanese yen was among the best performing currencies, with the currency gaining further on Monday after three weeks of sharp gains. The Bank of Japan is also due to meet later this week, with markets divided over whether to raise interest rates by 10 basis points.
Broader Asian currencies steadied after weathering a wave of selling last week as uncertainty over the U.S. presidential race and lingering concerns about China hit risk-oriented assets.
Dollar falls, focus on rate cuts
The dollar and the euro each fell 0.1% in Asian trading, extending losses after data – the Federal Reserve’s preferred gauge of inflation – showed some easing in inflation on Friday.
The reading reinforced bets that the Federal Reserve is close to gaining enough confidence to start cutting interest rates by September.
This week’s focus is squarely on the monetary policy meeting, where the central bank is expected to leave interest rates unchanged. But given recent signs of easing inflation and dovish comments from officials, traders will be watching for any signals from the central bank on when it will start cutting rates.
General expectations point to a 25 basis point rate cut in September, according to .
Japanese Yen Strong, Bank of Japan on Verge of Decision
The Japanese yen extended its recent gains against the dollar on Monday, with the pair down 0.1% at 153.61 yen. The pair also approached its lowest levels in nearly three months.
The recent rise in the yen’s value was driven by a combination of safe-haven demand and a decline in the carry trade, the main cause of which was suspected intervention by the Japanese government earlier in July.
Attention now turns to what happens this week, with analysts divided on the likelihood of the central bank raising interest rates by 10 basis points.
In addition to raising interest rates, the Bank of Japan is also due to provide more details on how it plans to start tapering its asset purchases.
Broader Asian currencies were slightly higher. The Australian dollar rose 0.2% after stabilizing following sharp losses last week. The Australian currency has been hit hard by falling commodity prices.
The Chinese yuan pair rose 0.1% after suspected government intervention sparked sharp volatility in the yuan’s value last week.
The Singapore dollar and the South Korean won pair rose slightly.
The Indian Rupee pair continued to hover just below the record highs hit last week.