Yen weakens, dollar steadies ahead of Central Bank meetings

The dollar maintained a steady course on Tuesday as investors prepared for a series of central bank gatherings this week. Meanwhile, the yen remained near a 10-month low due to concerns over Japan’s loose monetary policy.

Currency movements remained relatively subdued in Asian markets, with the impending rate decision by the Federal Reserve on Wednesday taking center stage. Additionally, attention in Asia focused on the Bank of Japan’s (BOJ) policy decision scheduled for Friday.

The yen saw a 0.1% decline, trading at 147.76 per dollar, and remained close to last week’s 10-month low of 147.95 per dollar.

Market expectations are for the BOJ to maintain extremely low interest rates on Friday and offer reassurances that monetary stimulus will persist, at least for now. This comes despite Governor Kazuo Ueda fueling speculation of a potential shift away from ultra-loose policy.

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Elsewhere, the Australian dollar slipped by 0.09% to $0.64315, disregarding the minutes of the Reserve Bank of Australia’s (RBA) September meeting, revealing considerations of a 25 basis point rate hike before deciding to keep the benchmark cash rate unchanged.

The U.S. dollar experienced a slight uptick, not straying too far from the six-month high it reached against major currencies last week. The dollar index saw a gain of 0.11%, reaching 105.20, while the New Zealand dollar dipped by 0.03% to $0.59155.

According to the CME FedWatch tool, money markets anticipate the Fed will maintain current rates at its upcoming meeting. However, the central bank’s forward guidance will be the focal point of attention.

The euro, on the other hand, relinquished some of its gains from the previous session, closing 0.12% lower at $1.0678. Its earlier increase had paralleled rising euro zone government bond yields, following hawkish remarks from European Central Bank (ECB) policymakers indicating the potential for further rate hikes.

A Reuters report suggesting that the ECB may soon initiate discussions on managing the multi-trillion-euro surplus of liquidity in banks also contributed to the euro’s rise. This surplus dilutes the impact of the ECB’s rate hikes by reducing competition for deposits, resulting in substantial interest payments and potential losses for some central banks.

In other currency news, the pound saw a 0.04% increase, reaching $1.2390, anticipating an interest rate decision from the Bank of England (BoE) slated for later this week. While another rate hike from the BoE is anticipated on Thursday, it could signal the conclusion of the current phase of tightening measures as concerns about a cooling economy weigh on policymakers.