Foreign Exchange Report

The week got off to a stronger start for the US Dollar with traders focusing on a series of upcoming central bank meetings. The Federal Reserve is widely forecast to increase rates by a further 25 basis points at the Federal Open Market Committee (FOMC) meeting next week. Parts of the US economy remain resilient, despite recent economic data indicating a growth slowdown, yet inflation is still sticky. The greenback edged up against most major currencies in Asia trade on Monday. The Dollar index increased 0.13% to 101.81 yet was on track for a monthly loss of over 0.7%, after declining more than 2% last month. 

Elsewhere, Sterling fell 0.06% to $1.2437, whilst the Euro dipped 0.07% to $1.0981. Data published at the end of last week revealed business activity in the US and eurozone gained momentum this month, allaying fears of a looming recession in major economies, Reuters reports. “The takeaway from the various PMIs is that the services sector both in Europe and the US seems to be pretty resilient,” according to the head of FX strategy at National Australia Bank, Ray Attrill. “There's nothing, as yet, to hang your hat on rate cuts in the second half of the year,” he went on to say. Markets forecast the European Central Bank will hike rates by 25 basis points at next week’s meeting, with a possibility for a 50-basis point rise.

The Rand moved down in early Monday trade in South Africa as the Dollar gained. At the time of writing, the Rand was trading at 18.1350 to the Dollar, a decline of around 0.2% compared to Friday’s close. 

Moving to Japan, all eyes are on this week’s policy meeting, the first to be chaired by the new Bank of Japan governor, Kazuo Ueda. It’s widely predicted that he will keep the central bank’s ultra-easy policy stance at this meeting, after he said earlier this month that any policy change wouldn’t happen quicky, the Reuters report adds. “We still look for a removal of the YCC (yield curve control) regime, an interest rate hike at some stage this year amid broadening inflationary pressures and upward pressure on wage growth in Japan,” stated OCBC currency strategist, Christopher Wong. At the time of writing, the Yen was down 0.2% at 134.41 per US Dollar. 

Furthermore, the Australian Dollar declined 0.29% to $0.6674, whilst the New Zealand Dollar dipped 0.15% to $0.6130.