By Amanda Cooper
LONDON (Reuters) -The dollar was steady against the euro and yen on Monday after the currency market’s most volatile trading week in months, as investors assessed policy and geopolitical developments.
The market is focused on the yen ahead of the Bank of Japan’s (BOJ) policy review on Friday.
The yen was trading around 154.69 per dollar, a hair off last week’s 34-year low of 154.79 and close enough to the 155 level that is next on traders’ radars for possible intervention by the Japanese authorities.
“There will be attention to the BOJ meeting, but it is too early for them to change policy, and the market does not give a rate change any chance,” said Chris Weston, head of research at Pepperstone.
The dollar’s trade-weighted index stood above 106, but off last week’s five-month high, after comments from Federal Reserve officials and a set of better-than-expected inflation data forced a cut in interest rate cut expectations.
A cooling of tensions in the Middle East, which had driven the dollar, gold and prices sharply higher and battered stock markets on Friday, also helped dampen volatility. Tehran downplayed Israel’s retaliatory drone strike against Iran, in what appeared to be a move aimed at preventing regional escalation.
Last week there was a big increase in volatility. Deutsche Bank’s currency volatility index rose 9.7% to its highest level since February.
This was the index’s biggest weekly rise since September 2022, when the pound fell to a record low against the dollar after the British government’s spending plans sent UK markets into crisis, and when the BOJ stepped in to for the first time buying the yen since 1998. .
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In addition to the BOJ meeting and one of the key weeks for U.S. earnings releases, investors will also receive first-quarter U.S. gross domestic product data on Thursday, as well as the Fed’s target inflation measure, the personal consumer price index. (PCE).
“FX has been center stage in recent weeks and could take a back seat this week as profits take center stage,” said XTB research director Kathleen Brooks.
‘The currency market can only think about one thing at a time and is currently obsessed with the strong dollar. So if we see any sign of any kind of weakening in the US economy, that’s what we’re waiting for. I don’t think we will see this in the GDP report,” she said.
The strong dollar also prevailed at the spring meetings of the International Monetary Fund and the World Bank in Washington, with the United States, Japan and South Korea issuing a rare joint statement on the issue.
Speaking after the Group of 20 (G20) financial leaders meeting in Washington, BOJ Governor Kazuo Ueda said Japan’s central bank could raise interest rates again if the yen’s decline significantly boosts inflation. highlighting the dilemma that the weak currency has become for policymakers.
The dollar has risen higher against a range of currencies and yet the yen has been the worst performing major this year, with losses of up to 9%.
The Fed’s reconsideration of easing has led to a general repricing of global interest rate cut timelines, but expectations that the European Central Bank (ECB) and Bank of England (BoE) will start cutting by mid-year are still always intact.
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Analysts don’t see much room for a further rise in US Treasury yields given the lackluster economic data for the rest of the month and the extent to which they have already risen as investors revise Fed expectations.
Two-year bond yields rose 38 basis points this month to a five-month high above 5.0%.
fell to 7.2518 per dollar, the weakest level since mid-November, despite the central bank’s daily benchmark sending the rate higher and receiving support from state banks.
was last up 2.2% at $66,071. The world’s largest cryptocurrency completed its “halving” this weekend, a phenomenon that occurs about every four years and aims to reduce the rate at which bitcoins are created.
