On Monday, the dollar strengthened against the yen on the forex markets. Investors toughened outlooks for an aggressive Federal Reserve interest rate cut later this month.
The dollar grew 0.2% versus the yen to 107.92 due to the rise in U.S yields.
Friday’s modest gains were pushed by the benchmark 10-year Treasury yield and scaled to 2.06%.
The broad decline in equity markets restricted the increase in safe-haven Treasury yields.
A senior forex strategist at IG Securities, Junichi Ishikawa, said, “A factor which could guide stocks lower this week are tweets by U.S. President Donald Trump pertaining to trade issues with China.”
Also, he also said, “Stocks could decline if he continues to make challenging trade comments directed at China this week.”
Last week, Trump continued to pressure Beijing. Another threat is the renewal of imposing tariffs on the other $325 billion of Chinese goods.
The pressure was despite the soon-to-resume face-to-face negotiations in a bid to end their year-long trade war.
The U.S. dollar index was stable at 96.83 after advancing on the forex markets 0.35% last week.
The currency-market observes and focuses on the global central bank decisions scheduled for the next two weeks.
It will begin with the European Central Bank meeting on Thursday, followed by the Bank of Japan and then the Fed next week.
In a note, an analyst at JPM Chase & Co said, “The moment of truth is now around the corner as central banks will be forced to unveil their policy intentions.”
Last week, a dovish speech by New York Fed President John Williams prospects for a 50-basis-point Fed cut ascended.
Meanwhile, investors toughened the expectations after a Fed spokesman explained that the remarks did not refer to potential policy action at the upcoming Fed meeting.
Prospects of more rate cuts
This month, in a news report, the Fed was likely to cut rates by 25 bps, outlooks for a more significant decrease mounted back even more.
In a note, an economist at Daiwa Securities, Kenji Yamamoto wrote, “The possibility of a 50-bps cut has almost dissipated following the WSJ report and the New York Fed’s attempt to tone down earlier comments by Williams.”
On Friday, in the forex markets, after shedding 0.5%, the euro was little moved at 1.1220.
Elsewhere, investors anticipate seeing if Boris Johnson triumphs the British Conservative Party’s leadership race.
The British pound held around 1.2494. It was threatened as concerns over the prospect of a no-deal Brexit continue to shape.
National Australia Bank FX Strategist Rodrigo Catril stated, “We’re likely to be marking time ahead of those big risk events later in the week.”
Besides, he also said, “The market is still licking its wounds post Fed Williams’ backtracking.”
Favors over the Dropping Interest Rates
Another member of the U.S. central bank said he supports the lowering of interest rates by quarter-point at the officials’ meeting.
The EUR/USD pair recorded a decline of 0.04% to 1.1215 at the forex markets.
The ECB’s policy meeting will be observed as investors await the steps Draghi may take to back the euro economy.
Japan’s manufacturing data is due on Wednesday. The USD/JPY pair trade 0.3% higher to 107.96.
The GBP/USD pair glided 0.1% as concerns over the outlook of a no-deal Brexit continue to shape.
Last week, the British pound traded nearly a 27-month low, versus the dollar before improving slightly on Friday.