FX Daily: Cautious BoJ hits the yen

The Bank of Japan did not give in to market pressure and kept its dovish guidance intact. However, the wording on the economic and inflation outlook paves the way for a hike in the second quarter in our view. The yen should revert to being driven mostly by US rates after taking a hit today. Elsewhere, Fedspeak will remain in focus along with some US data.

USD: Mixed Fedspeak

The dollar has started the week modestly offered, with Scandinavian currencies performing well and the yen dropping after this morning’s Bank of Japan announcement (more in the JPY section below).

The US calendar was empty yesterday, so the spotlight was on Fedspeak. Loretta Mester said that the markets are “a little bit ahead” on rate cuts, and Mary Daly said that her outlook for rate cuts is very close to the median Dot Plot (75bp of easing next year). Interestingly, Daly said that policy would still be restrictive if three cuts were delivered next year, which would probably imply greater room for easing if the economic outlook deteriorates. Chicago Fed President Austan Goolsbee said he is confused by the market reaction to the Dot Plot, but remarks from Daly and Mester instead seemed to endorse investors’ bullish response.

We’ll keep monitoring Fed speakers today, with Thomas Barkin and Raphael Bostic (the latter swings more to the dovish side) set to deliver remarks. However, the focus will also be on US data, with housing starts set to have declined along with building permits in November. October TIC data is also due today.

Tomorrow’s consumer confidence and Friday’s PCE and personal income numbers will be the last bits of data that can move the market before Christmas. Today, FX markets may stay quiet, and the general mood on the dollar could be modestly bearish unless we hear some more convincing pushback on rate cuts by Fed offici