SINGAPORE/LONDON, Jan 16 (Reuters) – The dollar started the week on the back foot, hitting a seven-month low against a basket of major peers in Asian trade, with the yen in particular focus as traders raised bets the Bank of Japan will further adjust its yield control policy.
The euro hit a fresh nine-month high of $1.0874 in early trade before retreating to $1.0861, down 0.16% by 0920 GMT, while the Australian dollar broke through the key 0.7000 level dollar for the first time since August, before falling back to $0.6959.
Also buoyed by early strength in sterling and the Japanese yen, the dollar index, which tracks the U.S. dollar against a basket of currencies, fell to a seven-month low of 101.77, extending its selloff from last week after data showed U.S. consumer prices fell for the first time in over 2-1/2 years in December.
“Every G10 currency strengthened against the US dollar last week on the back of US inflation data for December that confirmed continued easing of inflationary pressures, raising the prospect of the Fed ending its tightening cycle, possibly after the March FOMC meeting,” they said. MUFG analysts. in the note.
The Fed’s aggressive rate hikes were the main driver of the dollar index’s 8% gain last year.
Markets are now pricing in a 91% chance of a 25 basis point hike when the Fed announces its policy decision in February, with a 9% chance of a 50 basis point hike.
The dollar steadied in European trading, recovering against the pound, which was last down 0.4% at $1.2185.
MARKETS CAUSE BOY
A particular focus for currency markets this week is the Japanese yen, amid speculation that the Bank of Japan will make further changes or abandon its yield control policy at its meeting this week.
The dollar fell to its lowest yen level in more than seven months in early trading, before recovering to last trade at 128.35 yen, up 0.4%.
“I think the whole world will be focused on Wednesday … and probably the week in the G10 (currencies) will be defined by what happens with the yen-yen crosses, from that,” said Ray Attrill, head of FX strategy at National Australia Bank. (NAB).
“I don’t think (the BOJ) has the luxury of time to say it will assess and wait until K2 or Kuroda to see his mandate without any further changes.”
BOJ Governor Haruhiko Kuroda will step down in April.
Investors have been pressing for the BOJ to back away from its ultra-easy monetary policy, sending the yield on Japan’s benchmark 10-year government bond to break through the central bank’s new ceiling for two sessions. In more detail
US markets were closed on Monday for the holiday, leading to light trading.
Reporting by Ray Wee in Singapore and Alun John in London; Editing: Christian Schmollinger and Emelia Sithole-Matarise
Our Standards: Thomson Reuters Trust Principles.