- The dollar rose amid expectations of a Fed rate hike.
- The yen declined against the dollar as the Bank of Japan (BoJ) is inclined to maintain its key yield control policy.
- The pound experienced its sixth consecutive day of losses against the dollar.
Currency futures fell on Friday as the dollar rose amid expectations of a Fed rate hike. The dollar recovered from its July lows in the last week.
Dollar spot index (Source: Bloomberg)
This week, central bank meetings will occur in the United States and Europe, with the Fed and the European Central Bank expected to raise rates by 25 basis points.
Investors will closely observe remarks from Fed Chair Jerome Powell after the US central bank’s rate decision for hints on their future rate hike plans. Given two upcoming inflation reports after this week’s meeting, Powell will likely keep the optionality open.
Fed funds futures traders are currently pricing an additional 33 basis points of tightening this year, with rates expected to peak at 5.41% in November.
Elsewhere, the yen declined against the dollar. This came after a Reuters report stating that the Bank of Japan is inclined to maintain its key yield control policy in the upcoming week.
BoJ policymakers prefer to analyze more data to ensure continuous growth in wages and inflation before considering any policy changes, as stated by five reliable sources. The report mentioned the absence of a consensus within the central bank, making the decision a potentially close call.
Edward Moya, a senior market analyst at OANDA in New York, expressed expectations for the BoJ to retain its current yield curve control and interest rates, with a possible upgrade to its inflation outlook.
Speculation has been brewing in the markets that the BoJ might adjust its yield curve control as early as the July 27-28 meeting. This is due to the persistently higher inflation, surpassing the BoJ’s 2% target for over a year.
Meanwhile, the pound experienced its sixth consecutive day of losses against the dollar, marking its longest streak of daily declines since last September. Earlier on Friday, the pound briefly rose after data showed stronger-than-expected UK consumer spending in June.
Official figures on Friday revealed that British retail sales outpaced expectations in June, despite persistently high inflation. The growth was due to hot weather and food sales recovery following the spending disruption caused by King Charles’ coronation in May.