March 14, 2016 / 8:40 AM / 4 years ago

FOREX-Dollar steadies before BOJ, Fed meetings

* Euro broadly flat, little reaction to German regional election

* BOJ, Fed meetings awaited for fresh incentive (Recasts, updates prices, adds details)

By Anirban Nag

LONDON, March 14 (Reuters) - Currency markets were off to a relatively quiet start on Monday, stabilising after last week’s large swings, as investors geared up for Japanese and U.S. central bank policy meetings that could provide them with fresh direction.

There are also interest rate decisions from the Swiss National Bank, the Australian and Norwegian central banks this week along with the Bank of England. All these meetings are likely to provide a test of central banks’ ability to successfully manage market expectations, analysts said.

The euro was little moved by German election results over the weekend, where Chancellor Angela Merkel and her conservative CDU party received a drubbing. The euro has given up some of its post-ECB meeting gains but traders said more trimming of bets against the currency could leave it well supported above $1.10.

The euro was steady at $1.1136, not far from a one-month high of $1.1218 set on Thursday when it soared after the European Central Bank eased extensively but also signalled that it may limit future interest rate cuts.

The dollar was flat at 113.75 yen having gained 0.6 percent on Friday. An improvement in risk appetite on the back of rising stocks had lifted the greenback from a low of 112.225 to as high as 114.45 versus the safe-haven yen last week.

The Federal Open Market Committee meeting will be the focus.

And while signs U.S. inflation is picking up will be seen as a positive, the Fed will be wary of sounding too hawkish, with Chair Janet Yellen likely to convey a fairly neutral tone.

“The meeting could see an acknowledgement of slightly improved conditions ... the Fed wants to make sure these developments have taken hold before acting. Such a dovish message could see downward pressure on the dollar,” said Josh O’Byrne, currency strategist at Citi.

Meanwhile, the Bank of Japan, fresh from adopting negative interest rates in January, is expected to stand pat when its two-day meeting ends on Tuesday.

The market will sift through the BOJ’s policy statements for any hints that it may be losing confidence in negative rates after the ECB suggested it will have to be cautious on cutting rates ever deeper into negative territory.

“The potential limits of monetary policy will be the market’s theme after the ECB, which adopted negative rates before the BOJ, seemingly reverted its focus back to quantitative easing last week,” said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

The BOJ’s surprise decision to take rates below zero on Jan. 29 did little to weaken the yen, which eventually soared to a 16-month high against the dollar last month. (Additional reporting by Shinichi Saoshiro; Editing by Catherine Evans)

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