US dollar ticks up ahead of central bank meetings

THE US dollar edged up on Friday (Jan 27) to pull away from multi-month lows against the euro and sterling, as investors began to train their sights on a slew of major central bank meetings next week.

The Federal Reserve, European Central Bank (ECB) and Bank of England (BOE) are all due to make rate decisions next week. This comes as they judge what policy adjustments may be required in their battle with rampant inflation against a tough global economic backdrop.

Currency analysts said they did not expect big moves to end the week, with a key US jobs report also in sight next Friday.

The US dollar index, which measures it against six major currencies, gained 0.2 per cent to 101.93, as the greenback moved away from near a nine-month low against the euro and a seven-month trough on sterling.

The euro was last down 0.1 per cent versus the US dollar at US$1.0876, while sterling was down 0.4 per cent at $1.2367.

MUFG currency analysts said: “The failure of the US dollar to break lower… suggests from a technical perspective that some turnaround is possible.”

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Meanwhile, the yen rose against the US dollar, as heated Tokyo inflation readings spurred bets that a hawkish pivot from the Bank of Japan could be on the horizon.

The US dollar lost 0.3 per cent on the yen to 129.9, after data showed consumer price inflation in Japan’s capital accelerated to a nearly 42-year peak this month, piling pressure on the BOJ to step away from stimulus.

Shinichiro Kadota, a strategist at Barclays in Tokyo, said: “Market expectations for changes at any time, including the next meeting in March, will remain high, and that will keep the yen bid.” He saw a possibility of the US dollar-yen pair breaking below 125.

Traders broadly said they expect the Federal Reserve to increase interest rates by 25 basis points (bps) on Feb 1, a step down from December 2022’s increase of 50 bps. Meanwhile, the ECB has all but committed to raising its key rate by half a percentage point.

The BOE faces a challenge in controlling inflation without damaging an economy already in recession. The central bank will make its next policy decision on Feb 2, and is expected to announce a half-point increase. REUTERS