Yen weak versus dollar, euro ahead of busy central bank week

HONG KONG: The Japanese yen was on the back foot on Monday, ahead of a busy policy-focused week in which inflation will be in the spotlight with a major European Central Bank meeting and US consumer price data scheduled.

The dollar climbed to 130.99 yen in early trade, a fresh one-month high, and not far from last month’s 20-year peak of 131.34, after gaining 2.95% last week.

The euro has also climbed on the Japanese currency and hit 140.38 yen on Monday morning, extending a seven-year high hit last week.

Australian dollar resumes climb on yen as bond yields spike

Barclays analysts attributed last week’s softer yen to a recovery in risk assets, a rise in overseas yields, a stronger dollar and higher oil prices causing concerns about Japan’s balance of trade.

The dollar index, which measures the greenback against six major peers, was at 102.1 after gaining 0.47% last week after good jobs and manufacturing data.

Top of the agenda for many traders this week is Thursday’s meeting by the European Central Bank, which is expected to prepare the ground for an interest rate hike at its July meeting. There is some market speculation the ECB could start with a large 50 basis point rise, after euro zone inflation rose to yet another record high in May.

Markets are currently pricing in 125 basis points of hikes at the ECB’s four meetings this year.

“With (euro area) inflation yet to peak, in our view, the onus falls on the ECB to push back against the possibility of a 50bp hike in July,” said Barclays. “However, if President Lagarde were to leave all options on the table, market pricing is likely to continue advance, providing a basis for EURUSD to recover.”

The euro was steady at $1.0725 on Monday morning as was sterling at $1.249. The Reserve Bank of Australia meets on Tuesday, and most analysts polled by Reuters expect a 25 basis point rate hike, though some anticipate a 40 basis point increase.

The Australian dollar was at $0.7204 on Monday, having gained 0.67% last week.

This week’s other major event is the US consumer price index, which is due Friday.

A high inflation reading would add to expectations of aggressive tightening by the US Federal Reserve, and likely put an end to last month’s speculation that the Fed will take a break from raising interest rates at its September meeting.

Fifty basis-point hikes in June and July are priced in. Bitcoin continued to wobble around $30,000, and was slightly firmer at $30,300 in early trade.