© Reuters. FILE PHOTO: Japanese Yen and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
By Tom Westbrook
SINGAPORE (Reuters) – The dollar has been drifting lower and the yen has stabilized in the Asia session today as traders turn their attention to U.S. inflation data and a series of central bank meetings on the horizon.
The dollar is currently 0.5% lower at 145.46 yen. These two currencies have had quite a ride in recent days, with the yen surging after remarks made by the Bank of Japan were interpreted as hawkish, only to fall back after a news report downplayed the possibility of an imminent policy change.
“There is speculation about a shift by the Bank of Japan to higher rates, and there’s talk it could happen as soon as next week,” said ANZ economist Tom Kenny.
“A rate hike seems premature right now given weak consumer spending,” he added. However, inflation and wage trends suggest sustainable inflation, and ANZ expects Japan to start moving away from super-accommodative negative rates by April 2024.
Rising iron ore prices and a rebound in Chinese property shares have helped push the Australian and New Zealand dollars higher, while other currencies remain broadly steady.
The New Zealand dollar has risen by 0.5% to %0.6154.
Forty years after becoming a floating currency, the Australian dollar has crept 0.4% higher to $0.6596. The currency started around $0.9000 and has averaged $0.7550 since 1983. It was previously used by global investors as a liquid proxy for commodities and now serves as an exposure to China, Australia’s largest trading partner.
The euro is trading at $1.0765, while sterling is at $1.2577.
EYES ON CPI
The U.S. inflation data, due at 1330 GMT, will shape Wednesday’s Federal Reserve policy decision.
The dollar has been sliding since October’s benign U.S. inflation report, but it found support after upbeat jobs data was published last Friday. The Fed is expected to keep rates at 5.25%-5.50% this week, so the focus will be on the so-called dot plots for rates and Chair Jerome Powell’s press conference.
Economists surveyed by Reuters expect headline inflation to have remained flat for November, with core inflation maintaining a steady annual pace of 4% – well above the Fed’s 2% target.
“A further upside surprise in the data may lead to markets reducing their bets on aggressive rate cuts, alongside a firmer dollar,” said OCBC FX strategist Christopher Wong in Singapore.
“However, a softer print may result in more moderate dollar gains.”
Later in the week, the European Central Bank, Bank of England, Norges Bank, and the Swiss National Bank will all meet, with Norway being the only possible candidate for a rate hike. There is also a risk that the SNB could reduce its support of the franc in FX markets.
The franc nearly hit a nine-year high against the euro last week and is currently trading a little softer at 0.9442 francs to the common currency on Tuesday.
