The dollar traded near its highest in more than two months versus the yen on Monday ahead of a US Federal Reserve meeting this week where policymakers are expected to cut interest rates but emphasise their reluctance to ease policy further.
Sterling edged lower versus the dollar and the euro, with an agreement expected later on Monday to delay Britain’s divorce from the European Union to January 31 after Prime Minister Boris Johnson failed to win approval for his Brexit timetable.
The market focus will shift to the Fed meeting ending October 30 and a Bank of Japan meeting ending October 31. The Fed is expected to cut interest rates for a third time this year, but fixed income analysts say this is largely priced into the market.
The BOJ is leaning toward keeping policy on hold next week, but the decision is a close call as policymakers struggle with threats to the global outlook from the US-China trade war and Brexit.
“A Fed rate cut is already factored in, but the dollar could be bought back if the Fed somehow signals it won’t cut rates further,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
“Until we can confirm this, traders are likely to adjust their existing positions in the dollar.”
The dollar traded at 108.72 yen JPY= on Monday, close to 108.94 yen, which is the highest since Aug.
The greenback EUR= was quoted at $1.1084 per euro, close to its strongest in more than a week.
The dollar index .DXY against a basket of six major currencies rose slightly to 97.882, also near its highest in more than a week.
The US currency got a mild boost on Friday after the US Trade Representative’s office said it is “close to finalizing” some parts of a trade agreement with China.
On Saturday China’s Ministry of Commerce said “technical consultations” on some parts of a trade agreement were basically completed, but investors are likely to remain sceptical because even a partial deal would not eliminate risks posed by trade friction.
In the onshore market, the yuan CNY=CFXS briefly strengthened to 7.0523 per dollar, the strongest since October 14. In the offshore market, the yuan CNH=D3 edged to 7.0450 per dollar on Monday, the strongest since September 13.
The Fed meeting this week is widely expected to result in a cut in interest rates of 25 basis points, and that has been priced in, but some analysts expect the Fed to sound “hawkish” by signalling it is reluctant to cut rates further.
The pound GBP=D3 fell 0.17% to $1.2815 and eased 0.13% to 86.48 pence per euro EURGBP=D3.
The EU bloc’s 27 ambassadors will meet at 0900 GMT on Monday in Brussels to agree on a three-month delay from the current Brexit date of October 31, diplomatic sources told Reuters.
More than three years after Britons voted in a referendum to quit the EU, the country and its parliament remain divided over how, when and even whether to leave, and the matter has triggered a spiralling political crisis in the UK.
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