Currencies were largely rangebound in early Asia trade, as investors braced for a busy week which will also see the release of U.S. inflation data and the closely watched nonfarm payrolls report.
The yen was little changed after a key central bank survey showed on Monday that big Japanese manufacturers’ business sentiment hit a four-year high.
The Japanese currency was 0.1% weaker at 155.94 per dollar.
The survey outcome reinforced expectations that the Bank of Japan (BOJ) is poised to raise rates later this week, though attention will be on guidance from Governor Kazuo Ueda regarding the future rate-hike path.
“We expect the BOJ to raise its policy rate to 1% in July next year,” said analysts at Societe Generale, who are also expecting the BOJ to hike when it announces its policy decision on Friday.
“Once the policy rate reaches 1%, the BOJ will enter uncharted territory, so it will likely raise rates by 25 (basis points) and carefully monitor the impact on the economy and prices. We expect the BOJ to raise rates by 25 bps each after reaching 1% with a gap of at least nine months to a year between each hike.” Ahead of the BOJ outcome, rate decisions from the Bank of England (BoE) and the European Central Bank (ECB) are also due.
Markets have almost fully priced in a cut by the BoE as still-elevated inflation in the UK shows signs of drifting downwards, while expectations are for the ECB to stand pat.
Traders have also begun speculating that a rate hike could be on the cards for the ECB in 2026.
Sterling eased 0.17% to $1.3359 in early Asia trade on Monday, while the euro was down 0.09% at $1.1730.
“In terms of the BoE, I think it’s going to be very interesting. I think it’s going to be a finely balanced decision to cut,” said Joseph Capurso, Commonwealth Bank of Australia’s head of foreign exchange, international and geoeconomics.
“The risk is that the inflation data that comes out this week may take out some of the pricing for follow-up rate cuts.”
British inflation data is due on Wednesday.
Over in the United States, a host of delayed data owing to the historic government shutdown are set to be released, giving investors a long-anticipated view of the world’s largest economy that could help guide markets into year-end.
The November jobs report is due on Tuesday, while inflation figures are out on Thursday.
Against a basket of currencies, the dollar was struggling to break away from a near two-month low hit last week and stood at 98.43.
The Australian dollar eased 0.11% to $0.6647, while the New Zealand dollar was up 0.08% to $0.5807.
A divided Federal Reserve cut interest rates by 25 basis points last week as it seeks to shore up a weakening labour market. But Chair Jerome Powell signalled borrowing costs are unlikely to drop further in the near term as it awaits more economic clarity.
U.S. President Donald Trump said on Friday he is leaning toward either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the central bank next year.
(Reporting by Rae WeeEditing by Shri Navaratnam)
