The dollar weakened on Monday to near an eight-month low ahead of a series of central bank meetings this week. The US Federal Reserve is likely to continue to ease the pace of monetary policy tightening at its upcoming meetings and plans to raise interest rates by 25 basis points at its next two policy meetings.
USD/JPY pair struggled to hold significant gains above the psychological 130.00 level. The strength of the yen was limited by dovish comments from the BoJ president.
BoJ Governor Kuroda continues to maintain his lenient stance on monetary policy. This comes as investors grow optimistic that rising inflation will result in a hawkish move away from the BoJ. Any further hawkish change from the BoJ seems unlikely with Governor Kuroda at the helm and could happen when the governor steps down in April.
Driven by the risk associated with key central bank events, investors seem reluctant to bet on an aggressive bear market around the USD/JPY pair. In addition, comments from BoJ chairman Kuroda Haruhiko that the central bank must continue its easing policy and keep the inflation target at 2% limit the gains for the JPY.
USD/JPY Pair started the week at 129.8040 and then increased. Currently, the pair is holding above 130.00.
Higher Spanish inflation data supported the euro.
The euro surged above $1.09 in late January, hovering around its highest level since April last year as investors awaited multiple central bank meetings this week as they digested stronger than expected Spanish inflation figures.
The European Central Bank is due to raise interest rates by 50 basis points on Thursday, bringing borrowing costs to their highest level since 2008, while investors will also be on the lookout for signs of slowing the pace of monetary policy tightening at its March meeting.
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EUR/USD pair gained traction and climbed above 1.0900 during the European session, but failed to hold and fell to 1.0893.
The cable price (GBP/USD) was similar to the EUR/USD rate, i.e. it rose above 1.24 in the European session, but it did not hold and fell to 1.2384.
The slight selling pressure around the US dollar ahead of key central bank policy announcements this week appears to be helping the pair push higher. GBP/USD traders can expect interest rate decisions from both sides of the pair this week, with the US Federal Reserve and Bank of England expected to make February moves on Wednesday and Thursday respectively.
The Bank of England is to raise its base rates by half a percentage point. That would take them to 4%, the highest level since the 2008 financial crisis, with further increases expected. However, there have been some objections to the interest rate setting by the Monetary Policy Committee and it seems that a smaller hike is still on the table.
AUD/USD prices have fallen to a three-day low of around 0.7075 in the last hour, although any significant drop still seems elusive. The Aussie pair has lost its momentum above 0.7100 but is not falling significantly and is trading at 0.7076.
The Australian remains supported by expectations of further policy tightening from the Reserve Bank of Australia amid soaring inflation and China's swift reopening after Covid restrictions have boosted the global economic outlook.
Australia's annual inflation rose 7.8% in December, the RBA has already raised the cash rate by a total of 300 basis points at eight consecutive meetings in 2022, bringing borrowing costs to a 10-year high of 3.1%.
Source: investing.com, finance.yahoo.com, dailyfx.com