Prior to a significant U.S. inflation report later on Wednesday, the dollar was largely stable. However, it gained against the yen as traders continued to process comments made by Japan’s top central banker regarding a potential early end to its negative interest rate policy.
The value of the US dollar increased by almost 0.2% to 147.39 yen. As a result of comments made by Bank of Japan (BOJ) Governor Kazuo Ueda over the weekend, it had its largest one-day percentage increase in two months on Monday. It has since decisively reversed that trend.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, claimed that investors have now had more time to closely evaluate Ueda’s remarks.
He claimed that the statement was quite conditional and that Ueda made no guarantees.
After Ueda’s remarks caused the currency and bond yields to rise, influential ruling party lawmaker Hiroshige Seko on Tuesday also indicated his preference for ultra-loose monetary policy.
The BOJ continues to be a dovish outlier among global central banks, which has put the yen under constant pressure against the dollar, particularly since the Federal Reserve started its aggressive rate-hike cycle in March 2022.
The annual wholesale inflation rate in Japan dropped in August for the eighth consecutive month, according to data released earlier on Wednesday, while it still exceeded the central bank’s 2% target at 3.2%.
More generally, the dollar remained stable, but movements were muted as investors awaited a keenly anticipated estimate on U.S. inflation due later on Wednesday.
The Australian dollar dropped 0.03% to $0.6408 and the pound dipped 0.05% to $1.2489.
The U.S. dollar index, which compares the value of the dollar to a basket of other currencies, held constant at 104.61 after falling to a one-week low and recording its biggest daily decline in two months on Monday.
The decline was ascribed by analysts to a winding down of long dollar bets following a recent run of strong U.S. economic data.
The U.S. consumer price index (CPI) data for August were released on Wednesday, less than a week before the Federal Reserve’s policymakers’ meeting. On an annual basis, headline CPI is anticipated to increase by 3.6% and accelerate by 0.6% from a month ago.
According to CME’s FedWatch Tool, the Fed is likely to keep rates unchanged at its meeting next week, but its next action in November is less clear.
According to Tina Teng, a market analyst at CMC Markets, “I believe there is a likelihood that the Fed may increase interest rates once more this year.
The euro was unchanged at $1.0753 elsewhere. Prior to the European Central Bank’s (ECB) announcement of its monetary policy decision, markets increased their bets on more rate hikes from the ECB, pushing the currency to a one-week high of $1.0777.
According to a source who spoke to Reuters, the ECB anticipates inflation in the 20-nation euro zone to continue above 3% in 2019. This supports the argument for a tenth straight increase in interest rates on Thursday.
European inflation, and core inflation in particular, has declined more slowly than anticipated in recent months. This has caused the ECB some major issues, according to experts at Rabobank.
“The high inflation rate warrants another rate hike, but the economic indicators… signal that a recession is imminent.”