The yen exhibited strength against the dollar on Monday, driven by indications that the Bank of Japan (BOJ) might move away from negative interest rates at its upcoming policy meeting, in contrast to expectations for the Federal Reserve to implement rate cuts in June.
The dollar index, measuring the currency against a basket of major counterparts, remained close to a nearly two-month low reached on Friday. This followed reports of cooling U.S. labor market conditions, reinforcing expectations for the Fed to pursue monetary easing.
Sterling retraced sharply from a multi-month high after its strongest weekly performance since November 2022. This reversal came amidst speculation that the Bank of England might delay rate cuts compared to the Fed or the European Central Bank.
The dollar weakened by 0.17% against the yen to 146.82, approaching Friday’s five-week low of 146.48.
The dollar index remained flat at 102.68, lingering near Friday’s low of 102.33, not seen since January 15.
Analysts at Westpac suggested that dollar-yen could face downward pressure throughout the week, with potential sales emerging around 148, amid growing expectations of policy adjustments by the BOJ on March 19.
Meanwhile, the dollar index was deemed susceptible to further declines, possibly testing support levels at 101 this week, according to the note.
Reports suggest an increasing number of BOJ policymakers are considering ending negative interest rates at the upcoming March meeting, driven by expectations of significant wage increases from major Japanese firms during the annual “shunto” negotiations. Additionally, there are indications that the BOJ is contemplating a new quantitative monetary policy framework.
Contrarily, market participants are increasingly pricing in a 73% probability of rate cuts by the Fed at its June meeting, as reflected by the CME Group’s FedWatch Tool. This sentiment is bolstered by softening jobs data from Friday and remarks by Fed Chair Jerome Powell hinting at potential rate cuts.
Sterling declined by 0.7% to $1.2859 after closing last week with a notable surge to $1.2950, marking its highest level since late July. The currency recorded a 2.35% gain for the week against the dollar.
The euro remained relatively unchanged at $1.0944 after reaching $1.0980 on Friday, its highest level since January 12. The European Central Bank kept rates steady last Thursday while laying the groundwork for potential rate cuts later in the year.
In the cryptocurrency market, bitcoin experienced a slight decline of 0.17% to $68,301, maintaining levels below its record peak of $70,175 reached on Friday.