Dollar and Yen Trade Within Tight Ranges as Central Bank Meetings Loom

The dollar and yen remained in narrow trading ranges on Tuesday as investors awaited crucial monetary policy decisions from the Bank of Japan (BOJ) and the Federal Reserve, which are expected to set the market tone for the coming weeks.

Yen Performance
The Japanese yen paused its recent rally, which saw it strengthen over 2% against the dollar last week. This rally was influenced by a mix of factors, including a global stock market downturn and increased speculation that the BOJ might raise interest rates this week. The yen had previously hit a 38-year low of 161.96 against the dollar earlier this month.

Markets are currently pricing in a 63% chance of a 10 basis point hike by the BOJ. Additionally, the BOJ has indicated plans to begin quantitative tightening (QT), with expectations that it may halve its monthly bond purchases over two years. However, uncertainty remains about a rate hike amid Japan’s sluggish economic growth.

Dollar Outlook
The greenback traded 0.08% higher against the yen, at 154.125. Andy Ji, a senior Asia FX strategist at InTouch Capital Markets, noted that if the BOJ does not raise rates, the dollar might find near-term support at current levels against the yen. He also pointed out that the still significant U.S.-Japan yield differential could challenge the yen’s recent rally.

The Fed is widely expected to keep interest rates unchanged at its meeting on Wednesday, with markets anticipating a rate cut in September. Investors will be closely listening to Fed Chair Jerome Powell’s comments for any indications on the timing of rate cuts.

Global Currencies

• Dollar Index: The dollar index, which measures the U.S. currency against a basket of peers, was stable at 104.56.
• British Pound: Sterling traded at $1.2857, down 0.02%. The Bank of England faces uncertainty about its first interest rate cut since 2020 amid a lack of recent public comments from key policymakers.
• Euro: The euro rose 0.05% to $1.0824.
• Australian Dollar: The Australian dollar edged up 0.09% to $0.65555 ahead of a significant inflation report, which could influence the Reserve Bank of Australia’s decision on another rate hike.
• New Zealand Dollar: The kiwi climbed 0.27% to $0.58915, recovering from multi-month lows.

Cryptocurrencies
Bitcoin fell 1.08%, trading at $66,634.87, continuing its volatile trend.

As traders and investors look forward to the upcoming central bank meetings, the decisions and statements made this week will likely have significant implications for currency markets and broader financial conditions.