SINGAPORE: The yen was on the defensive on Friday ahead of a policy decision from the Bank of Japan that could see it further reduce its massive monetary stimulus, while elsewhere the euro, mired in political turmoil, was headed for a weekly loss.
The dollar was on the front foot, helped by gains against the euro and safe-haven bids as France’s snap vote call stoked fears of political uncertainty in the country and the wider euro zone bloc.
The yen was a touch weaker at 157.08 per dollar and on track for a marginal weekly loss of about 0.2%, though moves were largely subdued ahead of the conclusion of the BOJ’s two-day monetary policy meeting later on Friday.
While expectations are for the central bank to maintain ultra-low rates, it could announce a tapering of its massive bond purchases, in a slow but steady move away from quantitative easing.
“Our central view is that they will announce a reduction,” said Ray Attrill, head of FX strategy at National Australia Bank.
“The risks are probably a little bit asymmetric. If they announce no changes, then you would expect the yen to weaken, whereas the scope for the yen to strengthen, assuming they do do something along those lines, is probably quite limited.”
In the broader market, major currencies were struggling to make headway against a slightly stronger greenback on Friday, with sterling edging 0.08% lower to $1.2752.
It was set for a weekly gain of 0.3%.
The Aussie was off 0.18% at $0.6625, while the New Zealand dollar eased 0.26% to $0.6152.
However, the two Antipodean currencies were on track to rise 0.8% and 1% for the week, respectively, owing to expectations that rates there could remain higher for longer and also as a run of US economic data this week revived the chance of earlier rate cuts from the Federal Reserve.
Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased to a 10-month high last week while separate data pointed to producer prices unexpectedly falling in May, adding to bets the Fed could kick off its easing cycle in September.
The figures followed Wednesday’s US inflation reading which showed consumer prices were unexpectedly unchanged in May.
While the Fed, at the conclusion of its monetary policy meeting this week, struck a more hawkish tone than expected and projected only one rate cut for 2024, investors chose to focus on the softer-than-expected data instead, which has in turn sent Wall Street charging to record highs and Treasury yields falling.
“The Fed has changed its mind multiple times on its expected policy path, so we don’t put much weight on its new set of projections - and Powell himself said he didn’t ‘hold it with high confidence’, emphasizing the Fed’s data-dependent approach,” said Jean Boivin, head of the BlackRock Investment Institute.
“No matter the forward-looking statement from the Fed, incoming inflation surprises - in either direction - will likely continue to lead to large revisions to the policy outlook.”
Political jitters
The euro was little changed at $1.0737, and was poised for a weekly loss of roughly 0.6%.
The single currency has had a turbulent week in the wake of French President Emmanuel Macron’s decision to call a snap vote in his country, which spooked investors.
Macron had called for a snap parliamentary election on Sunday after France’s far right pummelled his own party in the EU parliament election.
Against the British pound, the euro was last languishing near a 22-month low and staring at a weekly decline of 0.9%.
Similarly, the euro held near its weakest level in over five months against the Aussie and in six against the kiwi.
“Although Macron’s announcement came as a surprise, there is a possibility that new elections could work in his favour. However, the likelihood of this scenario is quite low.
It is more probable that Macron’s political standing will diminish, albeit not to the extent of preventing him from establishing a new government,“ said Erik-Jan van Harn, senior macro strategist at Rabobank.
“Macron’s party suffered a substantial setback in the European elections, and unfavourable results in the upcoming elections could exacerbate concerns regarding the sustainability of the country’s debt.”
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