SINGAPORE: The yen steadied on Wednesday while the dollar struggled to regain some lost ground ahead of key rate decisions from the Bank of Japan (BOJ) and the Federal Reserve later in the day.
Overnight, Israeli airstrikes pounded Gaza and killed more than 400 people, US President Donald Trump and Russian President Vladimir Putin failed to reach an agreement on a Ukraine ceasefire and Germany’s outgoing parliament approved plans for a massive spending surge.
But currency moves were largely subdued as traders were hesitant to take on fresh positions ahead of Wednesday’s two main central bank events, particularly the Fed’s.
The euro did scale a five-month high of $1.0955 in the previous session and last traded near that level at $1.0937, as investors were optimistic the move in Germany could revive economic growth and scale up military spending for a new era of European collective defence.
“This is a historic fiscal regime shift, arguably the largest since German reunification,” said Robin Winkler, chief German economist at Deutsche Bank Research.
“Yet, as with reunification, a fiscal expansion does not guarantee success: the next government will need to deliver structural reforms to turn this fiscal package into sustainable growth.” Bank of Japan Elsewhere, the yen was little changed at 149.32 per dollar, as investors awaited the conclusion of the BOJ’s two-day monetary policy meeting, where the central bank is expected to stand pat on rates.
Focus will be on governor Kazuo Ueda’s post-meeting briefing for clues on how soon the BOJ could next raise rates, a decision complicated by the contrast between benign domestic data and uncertainty caused by Trump’s trade policy.
“We expect the BOJ to deliver a hold with some hawkish messaging off the back of strong inflation and wage growth expectations,” said Carl Ang, fixed income research analyst at MFS Investment Management.
“The BOJ appears broadly comfortable with bond yields rising in response, implying higher expectations for the terminal rate and more of a normal yield curve.”
Sterling last bought $1.30, standing just a whisker away from its four-month high of $1.3010 hit in the previous session.
The Australian dollar ticked up 0.02% to $0.6362 after falling 0.4% overnight as risk appetite stayed cautious, while the New Zealand dollar slipped 0.05% to $0.5818.
Against a basket of currencies, the dollar edged slightly higher to 103.33, though was languishing near Tuesday’s five-month low of 103.19.
The dollar has fallen nearly 4% for the month, pressured by Trump’s erratic tariff moves and as fears of a recession in the world’s largest economy mount.
The Fed’s policy decision later on Wednesday will be crucial for investors eager to know what the central bank makes of Trump’s policies and their impact on the U.S. economy, and how that would translate to the rate outlook.
Dollar stuck near 5-month low, struggles to shake off growth concerns
Fed policymakers are widely expected to keep rates on hold, and will also release new economic projections at the conclusion of the meeting later in the day.
Traders are currently pricing in nearly 60 basis points of Fed rate cuts by the year end. “The March FOMC meeting will likely be all about policy uncertainty. The Fed will almost certainly stay on hold, emphasising patience over panic,” said analysts at Bank of America Securities.
“The (Summary of Economic Projections) forecasts and distribution of risks are both likely to reflect stagflation: weaker growth and higher inflation.”
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