Joyce Alves and Bridget Riley
LONDON/TOKYO (Reuters) – The pound fell against the dollar on Thursday ahead of a Bank of England (BoE) meeting, while hawkish views from Bank of Japan (BOJ) members helped slow the yen’s fall.
The rise came as traders began to focus on U.S. inflation data due next week and its implications for Federal Reserve policy.
Sterling fell 0.2% to $1.2472, moving away from a three-week high of $1.2709 hit last week. The Bank of England is expected to keep rates steady but will note its intention to lower borrowing costs as inflation falls.
Money markets are pricing in a 96% chance the central bank will keep its benchmark interest rate at 5.25% when it meets at 1100 GMT, the highest since 2008, according to LSEG data. But investors will be watching for signs that will bolster their expectations. about when layoffs might occur.
Markets now see a 55% chance of a Bank of England rate cut in June, when the European Central Bank signaled it would cut borrowing costs, and a higher chance (72%) of a Bank of England rate cut in August.
“The big question is whether the pound price should be set closer to the Fed’s dollar cycle (and) or closer to the ECB’s (and) euro cycle. It may be too early for the Bank of England to signal a price hike in June, but we see downside risks for the US dollar.” pound,” said Chris Turner, head of markets at ING.
The dollar is slowly rising against the Japanese yen after falling 3.4% last week, its biggest weekly percentage drop since early December 2022.
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The yen was down 0.2 on the day at 155.87 to the dollar, with the Japanese currency briefly finding some support in the Bank of Japan’s opinion report released on Thursday, which showed board members were overwhelmingly ” hawks” at its April policy meeting, with many calling for sustained interest. raising rates.
“The Bank of Japan appears to be hinting at another rate hike, which could come in June or July when the final outcome of wage negotiations becomes known,” said Charu Chanana, head of currency strategy at Saxo.
Last week’s Federal Reserve meeting and an unexpected slowdown in U.S. job growth have led markets to increase bets on two rate cuts this year. But a gap remains between ultra-low incomes in Japan and the United States.
Japan’s top currency diplomat Masato Kanda on Thursday repeated his warning that Tokyo was ready to take action in the foreign exchange market.
Market players suspect Tokyo spent about $60 billion last week to stem the yen’s fall after it hit its lowest level in 34 years against the dollar at around 160 yen.
The dollar index, which measures the greenback against a basket of currencies including the yen and euro, rose 0.18% to 105.70, having hit a one-week high earlier.
Traders will be closely watching the April US Producer Price Index (PPI) and Consumer Price Index (CPI) next week for signs that inflation has resumed its downward trend towards the Fed’s 2% rate target.
Elsewhere, China’s index was unchanged on the day at 7.2321 as data showed China’s exports and imports returned to growth in April after contracting in the previous month.
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This could mean a potential delay to the rate cuts that some believe China will need to make to meet its 2024 GDP target.