Forex Dollar Gains Momentum, Yen Weakens Ahead of Key Central Bank Meetings

The US dollar demonstrates resilience against major currencies, while the Japanese yen exhibits a weakening trend. Investor focus now shifts to a series of pivotal central bank meetings slated for the upcoming week, notably featuring the U.S. Federal Reserve and the Bank of Japan.

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In Japan, significant wage agreements have been reached between prominent corporations and labor unions, marking the highest increase in 33 years. This development underscores growing expectations of a notable policy shift by the Bank of Japan away from negative interest rates.

Market participants remain closely attuned to central bank decisions, particularly regarding the trajectory of interest rate adjustments aimed at addressing surging inflation rates. Alongside the Fed, the Bank of England and Swiss National Bank are scheduled to convene next week, adding to the market's anticipation.

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The dollar index, which serves as a barometer of the greenback's performance against a basket of six major currencies, has remained relatively stable, hovering around 103.34. It appears poised to conclude a three-week losing streak with a noteworthy 0.6% weekly gain.

While the Fed is not expected to enact changes to interest rates, robust U.S. producer and consumer price data this week have tempered expectations for future rate cuts. Traders' sentiment now reflects a reduced likelihood of a rate cut in June, with the CME FedWatch tool indicating a 57% probability, down from 74% the previous week.

Currency analysts at MUFG anticipate a cautious stance from the Fed concerning the inflation outlook in the immediate future.

Against the Japanese yen, the dollar registered a 0.3% increase, reaching 148.745, marking its most significant weekly gain since January at 1.1%.

The Bank of Japan's potential departure from eight years of negative interest rate policy is gaining momentum, with internal preparations for a policy shift underway. The unwinding of ultra-easy monetary policy hinges significantly on robust wage outcomes, as highlighted by Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

In other currency movements, the euro experienced a modest uptick of 0.1% against the dollar, reaching $1.08925. Meanwhile, discussions within the European Central Bank Council regarding potential rate adjustments have commenced, according to council member Olli Rehn.

Bitcoin witnessed a turbulent trajectory, experiencing a 7% dip from its record high on Thursday amidst fluctuating risk sentiment. As trading settled, the cryptocurrency stood nearly 4% lower at $67,881.

Also Read: Forex-Currency Markets Await US Data: Fed Policy Clues in Focus