Dollar Steady, Yen Nears 7-Month High Ahead of Key Rate Decisions
The US dollar remains steady in trading on Monday, September 14, as investors await key decisions from the Federal Reserve (Fed) and Bank of Japan (BOJ). The Fed's decision is particularly closely watched, with markets now seeing an 86% probability of a rate hike this week, according to CME FedWatch. This follows Friday's data showing US consumer inflation rose in August.
The European Central Bank (ECB) raised interest rates last week and signaled the possibility of further hikes. The development is being closely watched ahead of the Fed's decision on Wednesday and an expected BOJ rate hike on Friday. Market participants increased their bets on a Fed rate hike after the inflation data, but AMP Head of Investment Strategy Shane Oliver noted that the Fed could still opt to wait.
The US dollar index stood at 99.15, relatively steady after posting slight declines for two consecutive weeks. Meanwhile, US government bond yields remained near multi-year highs, with the two-year Treasury yield edging down to 4.6148% after surging 26 basis points last week.
The Japanese yen has gained around 4% this month as expectations grow that the BOJ will accelerate rate hikes. The potential repatriation of assets by Japanese domestic investors has also supported the currency. MUFG analysts noted that a 25-basis-point BOJ rate hike had been almost fully priced in by the market, and for the yen to strengthen further, the BOJ is considered likely to need to signal that rate hikes will come at a faster pace.