Dollar steady before US Fed, Bank of Japan meetings

NEW YORK: The dollar was steady against the euro and yen on Monday as investors look ahead to central bank meetings with the U.S. Federal Reserve due to conclude a two-day meeting on Wednesday and the Bank of Japan due to meet on Friday.

The dollar has gained against major currencies in recent weeks as better-than-expected economic data revives expectations that the Fed will raise interest rates again this year.

At the same time, Japanese and European central banks are seen as adopting more stimulative policies in an effort to stave off deflation and generate growth.

Bank of Japan Governor Haruhiko Kuroda said on Saturday he would ease policy further if necessary to achieve its 2 percent inflation goal.

"The risk is that the market's disappointed in one fashion or another with the BOJ," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "Expectations are strong enough that if they don't do anything, the yen's going to strengthen."

The dollar was little changed on the day at 106.04 yen, and steady against the euro at $1.0984.

Kuroda also shrugged off speculation about "helicopter money" saying that it would be prohibited by law if it meant the BOJ directly underwriting government debt.

The Fed is seen as unlikely to raise interest rates on Wednesday, though investors will be looking for any signs that the U.S. central bank is more likely to hike rates in coming months.

Improving economic data has increased expectations that the Fed will raise rates in December after traders had previously priced out the possibility of a rate hike this year entirely.

Fed fund futures on Monday indicate traders see a 56 percent chance of a rate hike in December, up from 48 percent on Friday.

Any indication that the Fed may hike sooner than then could rattle investors.

"I would not expect them to close the door on a September rate hike because its data dependant and the data's been stronger than expected," Chandler said. "That could inject extra volatility in the markets."

European bank stress tests on Friday also will be a focus, with investors concerned about potential capital shortfalls at Italian and Portuguese banks.

Shares of Italian lender Monte Paschi were suspended on Monday after falling more than 5 percent in early trading.