The U.S. dollar was lower in early European trading on Monday, while the Japanese yen gave back some of last week’s gains ahead of a key Bank of Japan policy meeting.
At 05:35 ET (09:35 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 102.052 after falling about 1.3% last week.
The Fed’s dovish pivot hit the dollar
The dollar saw a significant decline last week after the U.S. Federal Reserve turned toward a rate cut at its latest policy meeting, with traders now fully expecting interest rate cuts until at least early next summer.
The U.S. economic data sheet is largely empty on Monday, and the week will focus on Friday, the Federal Reserve’s favorite gauge of inflation, which is likely to show an easing of consumer price pressures.
Before that, the president of the Chicago Fed will give his views on future policy later on Monday and Tuesday.
In the last few days of market activity, before volumes decrease ahead of Christmas, the focus is on a struggle between Fed officials attempting to ease speculation about rate cuts and investors who instead saw confirmation of last week’s dovish bets. Dot Plot projections,” ING analysts said in a note.
Yen stabilizes ahead of BOJ meeting
Elsewhere, it traded 0.1% higher at 142.30, with the Japanese yen giving back some of last week’s nearly 2% gains.
It wraps up its two-day monetary policy meeting on Tuesday, with traders uncertain when the dovish central bank will begin to unwind its ultra-loose policy settings.
“Bank officials have already tempered expectations of a rate hike this month, saying such a move is still premature,” ING added. However, with investors currently betting on the end of negative rates in January, the language used in this meeting will heavily impact the yen’s performance in the short term.
The weak German outlook continues to weigh on the euro
rose 0.3% to 1.0922, with the euro buoyed by relatively hawkish comments from the European Central Bank last week compared to a dovish pivot from the Fed.
However, the single currency continues to be weighed down by the deteriorating outlook for growth in the eurozone, a typical sign of which, according to data from the Ifo Institute, is the unexpectedly deteriorated German business morale in December.
It stood at 86.4 in December, down from a revised reading of 87.2 in November.
IFO President Clemens Fuest noted that as the year approaches its end, the German economy continues to display weakness.
rose 0.1% to 1.2687, ahead of the latest UK inflation data later this week.
The UK is expected to have grown by 4.3% year-on-year on Wednesday in November. While this is down from 4.6% the previous month, it is still more than double the BoE’s medium-term target of 2%, making a rate cut a more distant prospect.
Elsewhere, it traded 0.2% higher at 7.1318, while rising 0.6% to 0.6734, as the Australian dollar, a key gauge of risk sentiment, remained upbeat.
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