©Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with an exchange rate graph in this image taken June 16, 2022. REUTERS/Florence Lo/Illustration/file Photo
By Ankur Banerjee
SINGAPORE (Reuters) – The dollar held steady on Monday as traders looked ahead to a week dominated by central bank meetings around the world, with the Bank of Japan apparently on the verge of ending negative rates and the focus on How many rate cuts does the Federal Reserve expect? .
In addition to Japan and the United States, the central banks of England, Australia, Norway, Switzerland, Mexico, Brazil and Indonesia will meet, and are mostly expected to hold interest rates.
The spotlight in Asia is on the BOJ as bigger-than-expected wage increases by major Japanese companies have cemented expectations that the central bank is poised to herald a new era by ending negative interest rate policy, potentially already this week.
Internal preparations for an exit have been underway since Kazuo Ueda took office as BOJ governor in April last year, and were mostly completed by the end of the year, sources close to the thinking of the bank.
The Japanese yen weakened 0.13% to 149.22 per dollar on Monday, its lowest in more than a week, but is still up 0.5% against the greenback in March.
Tom Kenny, senior international economist at ANZ, said the end of negative interest rate policy would likely reflect a 10 basis point increase taking the current policy rate from -0.1% to 0.0%. “We expect this to be a dovish hike and the BOJ is unlikely to signal an intent to hike again anytime soon.”
There is a possibility that the BOJ will choose to wait until its April meeting to make the move, with markets pricing in a 39% chance the central bank will move on Tuesday.
As well as Japan, Australia’s central bank also meets on Tuesday and is expected to keep rates stable, with economists polled by Reuters expecting at least two rate cuts in the final quarter of 2024.
The Australian dollar was little changed at $0.6560, settling near a more than one-week low. It has risen about 1% so far in March. The New Zealand dollar was slightly higher at $0.60855.
The euro fell 0.04% to $1.0883, while the pound last traded at $1.2729, down 0.08% the day before the Bank of England meeting in Thursday, when the central bank is expected to hold rates.
The, which measures the U.S. currency against six rivals including the euro and yen, was at 103.48, having risen to 103.50, its highest since March 6 ahead of this week’s Fed meeting.
While the U.S. central bank is not expected to make any moves on interest rates, warmer-than-expected U.S. producer and consumer price data last week led traders to curb bets on future cuts.
Traders are now pricing in cuts of 72 basis points this year, with a 56% chance that the first rate cut will come in June, according to the CME’s FedWatch tool.
Attention has turned to whether policymakers will make changes to their rate cut projections or dot plots for this year. In December the Fed forecast rate easing of 75 basis points, or three rate cuts, in 2024.
NatWest strategists said last week’s inflation report was likely to keep the Fed in “wait and see” mode, with the “dot plot” widely expected to be updated.
“We assume Chairman Powell and the committee’s ‘base case’ is the same as the December dot plot with three 25 basis point moves this year. However, the bar is not very high for officials to signal holding rates unchanged a little longer, showing only two 25 basis point cuts this year.”
Elsewhere in cryptocurrencies, bitcoin fell 1.3% to $66,983, after hitting a record high of $73,803 last week. Ether was down 1.75% at $3,565.80.