Dollar headed for monthly loss; yen steady ahead of BOJ decision
SINGAPORE – The U.S. dollar was on track for a second straight monthly loss on Friday on mounting expectations the Federal Reserve could soon end its aggressive rate-hike cycle, while the yen steadied near a one-week high ahead of a pivotal central bank decision.
The Bank of Japan’s (BOJ) monetary policy decision on Friday takes center stage in Asia, where expectations are for new BOJ Governor Kazuo Ueda to keep monetary settings ultra-loose at his debut policy meeting.
Focus will also be on Ueda’s tone, with investors closely looking out for any tweak in forward guidance.
Ahead of the decision, the Japanese yen was roughly 0.1 percent higher at 133.84 per U.S. dollar, and similarly gained more than 0.1 percent against the British pound.
“I don’t expect the BOJ to change its monetary policy this time, but the newly-released Tokyo CPI was higher than expected … I think this puts pressure on the BOJ, they might do something in the near future,” said Tina Teng, market analyst at CMC Markets.
Consumer inflation in Japan’s capital accelerates, keeps BOJ under pressure
Core consumer prices in Japan’s capital, Tokyo, rose 3.5 percent in April from a year earlier, government data showed on Friday, beating market forecasts in a sign of broadening inflationary pressure in the world’s third-largest economy.
In the broader currency market, the U.S. dollar dipped against most major peers but its losses were capped by data pointing to still-sticky inflation in the world’s largest economy, which reinforced expectations for a 25-basis-point rate hike at next week’s FOMC meeting.
Against a basket of currencies, the U.S. dollar index last stood at 101.45 and was headed for a monthly loss of more than 1 percent, after having fallen about 2.3 percent in March.
Sterling slipped 0.06 percent to $1.2492.
Data released on Thursday showed that while U.S. economic growth slowed more than expected in the first quarter, consumer spending, which was accompanied by a rise in inflation, accelerated.
US economic growth slowed in Q1 as businesses draw down inventories
A measure of inflation in the economy, the price index for gross domestic purchases, rose at a 3.8 percent pace after increasing at a 3.6 percent rate in the fourth quarter, while the core PCE price index jumped at a 4.9- percent rate after advancing at a 4.4 percent pace in the prior quarter.
“The Fed is widely expected to hike again next week but with inflation remaining sticky, we expect the Fed to stay on hold for the remainder of the year, dashing hopes of a policy pivot in (the second half),” said analysts at Societe Generale.
Elsewhere, the euro held near a recent one-year high and last bought $1.1033. It was eyeing a monthly gain of close to 2 percent.
The common currency has been buoyed by expectations the European Central Bank still has more to go in raising interest rates, in contrast with a dovish repricing of its U.S. counterpart.
“Investors favor currencies that can offer both an ongoing domestic tightening cycle and still some room for a hawkish surprise at the coming meetings,” said ING analysts. “In that sense, the euro is one of the very few currencies that can offer this combination at the moment.”
Down Under, the Australian dollar rose 0.05 percent to $0.66335, while the kiwi gained 0.07 percent to $0.61515.
