SINGAPORE- The euro and yen barely moved in Asian trading on Monday and the US dollar was perched just off five-month highs after last week’s hectic policy and geopolitical developments.
Eyes are on the yen this week, with the Bank of Japan’s (BOJ) Friday policy review the notable item on the economic calendar.
The yen hit 154.70 per dollar, not far from last week’s 34-year low of 154.79 and close enough to the 155-level that is next on traders’ alerts for possible intervention by Japanese authorities.
The dollar’s trade-weighted index was above 106, but off five-month highs it struck last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations.
A cooling in Middle East tensions, which had driven the dollar, gold and crude oil prices sharply higher on Friday and battered stock markets, also helped temper volatility. Tehran downplayed Israel’s retaliatory drone strike against Iran, in what appeared to be a move aimed at averting regional escalation.
“There will be a focus on the BOJ meeting, but it is too soon for them to alter policy, and the market gives a change in rates no chance at all,” said Chris Weston, head of research at Pepperstone.
Referring to Japanese rates swaps, Weston said he sees “no change priced for this meeting” but a hike of 10 basis points priced by July and 25 bps priced by December.
Besides the BOJ meeting and a spate of US corporate earnings, investors will also get US first-quarter gross domestic product data on Thursday and the inflation metric the Fed targets, the personal consumption price expenditures (PCE) index.
“Markets continue to unwind the flight to quality bond bid” given the de-escalation of the Middle East situation, said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
