US dollar slips, yen rises ahead of central bank meetings

[NEW YORK] The US dollar slipped against the euro and the yen on Monday in a cautious market ahead of interest rate decisions by the Federal Reserve and Bank of Japan this week.

Though the Fed was largely expected to hold ultra-low interest rates unchanged at the end of a two-day meeting Wednesday, traders hoped the post-meeting statement would shed light on the outlook for future rate hikes.

"The euro hit a technical support level at 1.12 on Friday and we have seen a little bounce-back since," said Boris Schlossberg of BK Asset Management.

"But mostly it's just the market positioning itself" before the Fed rate decision, he said.

The dollar fell to US$1.1266 per euro around 2100 GMT, down 0.3 per cent from Friday.

The Fed was expected to remain cautious amid worries about the global economy, including Britain's June vote on exiting the European Union and weak inflation.

"Any softening of the Fed's concern regarding international headwinds or any signs that officials see inflation pressures beginning to mount would suggest a higher probability of a hike in June and likely send the dollar higher," said Omer Esiner at Commonwealth Foreign Exchange.

The yen, meanwhile, rebounded from Friday's plunge in reaction to a Bloomberg News story that the central bank may take steps to support major financial institutions hit by its negative-rate policy.

The Japanese currency rose 0.5 per cent against the greenback and 0.2 per cent against the euro.

If the Bank of Japan's meeting on Wednesday and Thursday results in easier policy, that could send the yen lower, Esiner said.

But, he said, "the extent to which any yen losses can be sustained is unclear, especially against a still nervous and risk-averse global market backdrop."

AFP