The yen was on the back foot on Monday and the dollar held firm against most peers ahead of a busy policy-focused week in which inflation is in the spotlight with a major European Central Bank meeting and U.S. 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.
It lost a little ground in the course of the morning to 130.7 yen. The euro also climbed on the Japanese currency and hit 140.38 yen on Monday morning, extending a seven-year high struck last week.
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 102.06 after gaining 0.47% last week following good jobs and manufacturing data, snapping a two-week losing streak.
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 accelerated 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 to advance, providing a basis for EURUSD to recover.”
The euro was a whisker firmer at $1.0733 on Monday morning and sterling was steady at $1.2505, not immediately affected by reports that British Prime Minister Boris Johnson is expected to face a vote of confidence. 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 steady at $0.7206 on Monday, having gained 0.67% last week. This week’s other major event is U.S. consumer price data due on Friday.
A high inflation reading would add to expectations of aggressive tightening by the U.S. Federal Reserve and likely put an end to last month’s speculation it 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 as it has for the past three weeks, and was 4% firmer at $31,300.
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