During today's Asian trading, the US dollar rose slightly against major currencies, while market participants took a wait-and-see attitude amid the lack of specific statements from Donald Trump about tariffs.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.06% to 108.33. Earlier this week, Trump said he was discussing the imposition of duties of about 25% for Canada and Mexico and 10% for China from February 1. He also promised duties on European imports, but did not provide any details. Overall, Trump has so far maintained a less hostile than expected stance towards China, but market sentiment could deteriorate dramatically if Trump chooses a more aggressive tone. Gradually, investors' focus is shifting to the Fed's meeting next week, with experts warning that policymakers may confirm a longer path to achieving the 2% inflation target due to Trump's upcoming policies on tariffs and immigration. According to the CME FedWatch Tool, markets see a 0.5% probability of a 0.25% rate cut in January (compared to 2.1% a week ago). Traders expect the Fed to cut interest rates by 0.25% by July, while the probability of another rate cut by the end of the year is about 50%.
The Japanese yen consolidated against the US dollar, while investors are preparing for the announcement of the results of the Bank of Japan meeting (tomorrow at 03:00 GMT). Consensus estimates suggest that the Central Bank will take the next step towards normalizing its policy. The Bank of Japan raised interest rates twice last year, in March and July. However, since then, the central bank has taken a break for several months. This partly reflects market volatility, including large fluctuations in the yen after the July rate hike, as well as a more unstable local political environment since the ruling coalition lost its majority in the lower house elections late last year. The Bank of Japan's December policy statement was also less hawkish than expected, as Governor Ueda cited the need for more information on wage increases to support the decision to further tighten policy, and did not give a clear signal on the timing of further rate hikes. According to experts, the fundamental arguments in favor of further normalization of monetary policy remain unchanged, while economic growth is relatively stable and core inflation has exceeded 2%. Moreover, recent events point to an increased likelihood of a rate hike in January. Labor force cash earnings rose 3.0% year-on-year in November, indicating more stable wage trends, while media reports suggest that the Bank of Japan may also raise its core inflation forecast in January and is actively considering raising rates. Overall, markets pricing 96% odds of a quarter-point hike on Friday.