During today's Asian trading, the US dollar declined slightly against major currencies, while investors continue to overestimate the prospects for easing the Fed's monetary policy, as well as prepare for meetings of the Bank of Japan, the Bank of Canada and the ECB.
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) fell by 0.09% to 103.16. Last week, the index rose by 0.86%, as stronger than expected US data and statements by Fed policymakers have forced investors to reduce the likelihood of interest rate cuts in the near future. Fed Governor Christopher Waller said the Fed should act "methodically and cautiously" until it becomes clear that the decline in inflation will be sustained. In addition, the president of the Federal Reserve Bank of Chicago, Austan Goolsbee, said that several more inflation data will be needed before any decision can be made on lowering rates. According to the CME FedWatch Tool, markets see a 43.4% probability of a 25 basis point rate cut at the Fed meeting in March and a 84.6% probability of a rate cut in May.
The yen consolidated against the US dollar, but remained near a one-month low, as investors are cautious ahead of the Bank of Japan meeting, the results of which will be announced tomorrow. After a series of adjustments to the yield curve control policy, an increase in the interest rate from the current -0.10% seems to be the natural next step. However, BOJ Governor Ueda and other policymakers stressed the importance of stronger wage growth, which would support the central bank's sustained achievement of the 2% inflation target, as part of such a policy move. In this regard, the latest economic indicators do not support the inevitable rate hike at tomorrow's meeting.