During today's Asian trading, the US dollar weakened slightly against major currencies, extending its recent declines driven by rising expectations for Fed monetary policy easing in 2024.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.16% to 102.38. Last week, the index fell by 1.4% as updated interest rate forecasts showed that Fed policymakers are now forecasting three interest rate cuts in 2024, compared with a previous estimate suggesting only two cuts. Fed Chairman Jerome Powell also struck a more dovish tone at the conclusion of the two-day meeting, saying that the prolonged tightening of monetary policy was probably over as inflation was falling faster than predicted and discussion of reducing borrowing costs "is coming into view." According to the CME FedWatch Tool, markets see a 67.5% probability of a 25 basis point rate cut at the Fed meeting in March 2024 and a 96.3% probability of a rate cut in May 2024.
The yen fell by 0.15% against the US dollar, while investors are preparing for the meeting of the Bank of Japan, the results of which will be announced tomorrow. Last week, the yen rose by 1.92% amid speculation about further actions by the Bank of Japan. The basic scenario of economists is that the interest rate will remain negative until the meeting in April 2024, when it is expected to increase by 10 basis points to 0.00%. Discussions around the possibility of a rate hike in December have subsided as market participants have refocused on economic conditions in Japan and are considering what events should happen to make policy normalization worthwhile. Experts point out that Japan needs to see stronger GDP growth, and this growth, in particular, should be driven by internal components such as consumer spending and business investment. Another important factor that has been repeatedly commented on by Bank of Japan officials is the results of the spring wage negotiations next year. The Bank of Japan's policymakers stressed the need for more active wage growth, which would help consolidate the inflation target. Since experts do not yet see these elements combined, they continue to expect a rate hike in April.