By Alden Bentley, Harry Robertson and Kevin Buckland
NEW YORK/LONDON/TOKYO (Reuters) -The dollar held steady on Monday as traders braced for an avalanche of market events with policy decisions through the week from the Federal Reserve, Bank of Japan and Bank of England, and what a crucial one employment in the US could be. Friday report for the Fed.
The yen was little changed after the Japanese currency’s strongest weekly rally since late April, due to shifting interest rate expectations and a stock market sell-off.
The , which measures the currency against the euro, the yen and four other major currencies, rose 0.18% to 104.56. The euro fell 0.33% to $1.0821.
The dollar/yen last rose 0.13% to 153.995, reversing an earlier decline of as much as 0.49% to 153.04.
Markets have been focused on the yen’s rise this past week, with increasing speculation of a BOJ rate hike this week helping the currency, along with the specter of intervention by the BOJ following several rounds of official yen purchases in recent weeks.
Win Thin, Brown Brothers Harriman’s global head of market strategy, said in a client note that the yen is likely to struggle to gain further upside momentum, with the BOJ likely to make a moderate increase at its meeting on Wednesday.
The US Federal Open Market Committee (FOMC) is widely expected to leave interest rates unchanged this week but cut them by a quarter of a point at its next meeting in September.
Although the FOMC will not meet in August, Fed Chairman Jerome Powell could use the Jackson Hole meeting of central bankers in late August to prepare the market for a rate cut. More data on inflation and Friday’s July employment report will be available by then, allowing policymakers to weigh the conditions for a cut in September.
So while interest rate differentials in the US and Japan are expected to narrow, the short-term carry trade benefit of borrowing/shorting the yen to finance investments outside Japan does not appear to materialize significantly over the next two months. will erode.
“The market doesn’t have a lot of conviction right now. It doesn’t have a lot of conviction because everyone is reading from the same songbook, which the Fed would call a ‘softening grip,'” said Marc Chandler, chief market strategist. at Bannockburn Global Forex in New York.
MARKET MOVEMENTS
Data released Friday showed investors have sharply scaled back their bets against the yen, which was trading at a 38-year low early this month.
“Sentiment remains fragile,” said Shinichiro Kadota, currency and interest rate strategist at Barclays in Tokyo.
Ultimately, “US equities are still key,” Kadota added, referring to the demand for safe-haven currencies like the yen seen during last week’s stock market crisis. “Market moves have been led by US stocks, and we need to see if things stabilize there.”
Wall Street was steady Monday after a volatile week marked by a deep two-day shakeout on concerns about mega-cap profits. The US earnings calendar is filled with heavyweights this week, including Amazon.com (NASDAQ:), Apple (NASDAQ:), Meta Platforms (NASDAQ:) and Microsoft (NASDAQ:).
Currency traders also face a meeting of the Bank of England on Thursday, where the chances of a first rate cut are seen as a coin toss. British government bond yields fell on Monday, weighing on the pound.
There was little reaction in sterling after Britain’s new Chancellor of the Exchequer, Rachel Reeves, announced cuts worth 13.5 billion pounds ($17.3 billion) over the next two years to end to what it claims was a £22 billion overspend caused by the previous government.
The pound closed 0.01% easier at $1.28645.
“There are a lot of big things happening this week and this is still market positioning leading up to those events,” Chandler said.
Elsewhere, the Australian dollar was 0.02% firmer at $0.6548, trying to recover from Friday’s low of $0.65105, a level not seen since early May.
Leading cryptocurrency bitcoin traded 1.22% lower at $67,390, shaking off positive comments from Republican presidential candidate Donald Trump, who told a bitcoin conference on Saturday that the US must dominate the sector or China would.
