The US dollar held steady today, but remained near multi-week lows against a basket of major currencies. Traders are on high alert ahead of this week's central bank meetings, particularly the Federal Reserve, where interest rate decisions are due to be announced. The US currency was at a one-month low against the British pound and the Australian dollar in early Asian trading at $1.25805 and $0.6745, respectively. However, market movements were slow as most of Australia was closed for a holiday. The Fed, ECB and BOJ policy meetings will be key market determinants this week, as market participants look for direction from policymakers on the future direction of interest rates. "Given the event risks ahead, market activity is likely to be relatively quiet today," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. Currency markets are uncertain ahead of the Federal Reserve's interest rate decision on Wednesday. According to the CME FedWatch tool, market expectations for the rate decision sent Wall Street to a 13-month high on Friday as risk sentiment improved. The U.S. dollar index fell about 0.5% last week, posting its worst weekly decline since mid-April. However, it was last slightly up at 103.58. In contrast, most economists polled by Reuters expect the European Central Bank (ECB) to raise its key interest rate by 25 basis points at this meeting, and possibly raise it again in July. After that, however, the ECB is expected to hold off on raising interest rates for the rest of the year due to persistently low inflation. The euro fell 0.02% to $1.0744 in early Asian trade, after gaining 0.4% last week. That was its first weekly gain in about a month. "Aside from the decisions taken by central banks at these meetings, the forward guidance they provide will be of particular interest," economists at ANZ wrote in a note.


"Central banks have been aggressively hiking interest rates in the last 12-15 months and that has had a delayed effect where monetary policy is feeding into demand. The question is are central banks prepared to pause, following the example of the RBNZ?" The Reserve Bank of New Zealand (RBNZ) last month signalled that policy tightening was on the cards after it raised interest rates to a more than 14-year high of 5.5%. The hike ended the most aggressive rate-hiking cycle since 1999. The impact of the rate hikes sent the kiwi down 2.7% in May. The Antipodean currency was last down 0.07% to trade at $0.6126, although it was still close to a two-week high of $0.6138 hit on Friday. The kiwi's decline in May was largely driven by the RBNZ's aggressive rate hikes. Any hint of further tightening in monetary policy could weigh on the currency's exchange rate. Elsewhere, the Japanese yen was steady at 139.35 per dollar. The Bank of Japan is widely expected to maintain its ultra-loose monetary policy stance at its meeting. Its projection for a moderate economic recovery is expected to be maintained, with strong corporate and household spending cushioning the impact of slowing overseas demand, sources told Reuters. "We are changing our BOJ call for no revision to the YCC at this week's meeting," said Jin Kenzaki of Societe Generale, referring to the central bank's controversial yield curve control policy. "However, we still think the BOJ could widen the band at its July meeting." Data out on Monday showed that Japanese wholesale inflation slowed for a fifth straight month in May as fuel and commodity prices fell, a sign that cost pressures that have been pushing up consumer inflation may be easing.


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