USD: US Dollar slides ahead of central bank meetings

The US Dollar (USD) fell on Monday, dropping to a two-week low against the yen, as traders looked ahead to several major central bank meetings and a slew of major economic data releases this week.

The Bank of Japan (BOJ) kicked off its two-day monetary policy meeting on Monday, leading a week that will also see interest rate decisions from the U.S. Federal Reserve and the Bank of England (BoE).

A deluge of purchasing managers’ surveys, euro zone inflation and GDP data, and U.S. nonfarm payrolls are also due for release this week.

“The U.S. dollar is sliding a little this morning, but not in any measure that puts it trading outside recent ranges,” said Helen Given, FX trader at Monex USA in Washington.

“If consumer data domestically hadn’t been so strong last week, we’d probably be looking at a bigger slide for the dollar, but markets are still finding it quite difficult to discount the resilience of the U.S. economy.”

Analysts also pointed to the U.S. Treasury’s quarterly refunding announcement on Wednesday that could move both the bond and currency markets.

That refunding announcement comes as mounting deficits and a heavier interest rate burden have substantially increased the U.S. Treasury’s funding needs. Since the last refunding announcement in August, borrowing rates have spiralled to their highest since 2006-07.

The Treasury will also announce borrowing estimates for the fourth quarter and the first three months of 2024, a bigger deal than usual for investors. It was the announcement on July 31 of $1.007 trillion in funding needs for the third quarter, leading to the sharp increase in auction volumes, that spooked the bond market.

The dollar index was last down 0.30% at 106.60, after earlier falling to a one-week low of 106.22, hurt by a small pick-up in the euro . The euro was last up 0.4% at $1.0605.

In the mix in Europe on Monday was cooling German state inflation data, which pointed to slowing headline inflation in the euro zone’s largest economy, and a separate release showing German gross domestic product fell by 0.1% quarter on quarter in the third quarter, though this was above expectations.

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Of the three central bank meetings, the BOJ’s is attracting the most scrutiny from investors given heightened speculation about a possible policy tweak.

The recent surge in global interest rates has heightened pressure on the BOJ to change its bond yield control policy, as speculation mounts that the central bank could hike its existing yield cap at this week’s meeting.

The Fed and BoE are both expected to keep rates steady so, barring any surprises, the focus will be more around the message the policymakers communicate.

The yen was little changed against the dollar, which earlier fell to a two-week low of 149.28 yen and was last at 149.72. The Japanese currency got a slight reprieve after having struck a one-year trough of 150.78 per dollar last week.

The pound was up 0.2% at $1.2141 .

U.S. nonfarm payrolls data on Friday will also be important for expectations of the Fed’s rate hike path. Wall Street economists are expecting new U.S. jobs of 188,000 for the month of October.