SINGAPORE: The yen rose on Monday in a boost from upbeat Japanese GDP data, while the Australian and New Zealand dollars held broadly steady ahead of policy decisions later in the week.
The dollar was on the back foot as traders assessed recent weaker-than-expected U.S. economic data which have reignited bets for more Federal Reserve rate cuts this year.
The yen was last 0.27% stronger at 151.94 per dollar, reversing losses from earlier in the session after data on Monday showed Japan’s economy expanded faster than expected in the fourth quarter - cementing the case for more rate hikes from the Bank of Japan (BOJ) this year.
Traders are now pricing in roughly another 35 basis points worth of rate hikes by December.
“Even though the jump in Q4 GDP wasn’t broad-based, it supports our view that the Bank of Japan will tighten policy more aggressively this year than most anticipate,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
In the broader market, the dollar was struggling to recoup its losses after a selloff on the back of Friday’s weak U.S. retail sales data and as investors cheered the delay in the implementation of Donald Trump’s reciprocal tariffs.
Geopolitics also remained in focus with reports that talks aimed at ending the Russian-Ukraine conflict will begin in Saudi Arabia this week, though the participants are not entirely clear.
That kept the euro supported, with the common currency inching closer toward the $1.05 level and last at $1.0487, while sterling was little changed at $1.2582.
The dollar index last stood at 106.79, after tumbling 1.2% last week.
“The dollar weakness… was a function of both ongoing optimism that maybe tariffs are not going to be as disruptive as originally thought - that of course, remains to be seen, the Ukraine story is still bubbling in the background there,” said Rodrigo Catril, senior FX strategist at National Australia Bank.
Yen on back foot after US inflation data, euro buoyed by Ukraine peace talks
“And then the data, of course, playing to the idea that maybe the U.S. exceptionalism is running out of steam, so it’s weighing on the U.S. dollar.”
Down Under, the Australian dollar ticked 0.07% higher to $0.6357, ahead of a rate decision from the Reserve Bank of Australia (RBA) on Tuesday.
The RBA is expected to deliver a quarter-point cut, marking its first reduction in over four years as it joins other major central banks in their easing cycles.
The kiwi similarly rose 0.03% to $0.5734 ahead of the Reserve Bank of New Zealand’s policy decision on Wednesday, where markets have priced in a 50-basis point reduction.
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