During today's Asian trading, the US dollar declined moderately against major currencies, partially offsetting Friday's growth, while market participants are preparing for the Fed meeting.
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) fell by 0.18% to 105.75. On Friday, the index rose by 0.47%, partly helped by US inflation data, which showed no signs of slowing down, and confirmed expectations that the Fed is likely to postpone rate cuts until the end of the year. The key event of this week will be the Fed meeting (on Wednesday), while experts expect the Central Bank to leave interest rates unchanged. Focus, however, will be on any guidance for the Fed's rate outlook. Market pricing shows a first Fed rate cut is expected in September, with just over 30 basis points worth of easing expected this year. According to the CME FedWatch Tool, markets see a 11.5% probability of a 25 basis point rate cut at the Fed meeting in June, and a 30.7% probability of a rate cut in July.
The yen jumped sharply after it slid past 160 per dollar earlier in the session, leading to speculation that Tokyo could have intervened in the currency market. Trade sources said Japanese banks were seen selling dollars for yen. Meanwhile, Japan's chief currency diplomat Masato Kanda declined to comment when asked if the authorities had intervened. USD/JPY is currently trading at 155.55 (-1.76%). For several weeks, market participants have been cautiously awaiting any signs of action by the Japanese government to support the national currency, which has fallen by 11% against the dollar this year. The yen came under pressure as interest rates in the United States rose and in Japan remained close to zero. Experts said that the Ministry of Finance may take action again if USD/JPY returns to the level of 160, which in a sense represents a pain threshold or a new line in the sand for the authorities.