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The dollar is poised for its fourth consecutive weekly gain, buoyed by contrasting signals from the Bank of Japan (BOJ) and the Federal Reserve regarding interest rate policy.
As traders reassess expectations for rate hikes and cuts, the dollar has strengthened against the yen, reaching a 10-month high.
BOJ Governor Kazuo Ueda and Deputy Governor Shinichi Uchida have conveyed dovish sentiments, suggesting that easy monetary conditions may persist even after the BOJ ends its negative interest rate policy. The market anticipates a shift in BOJ policy next month, contributing to the yen’s weakening against the dollar.
Fed’s Resilience and Dollar Strength:
In contrast, Federal Reserve officials have signaled a reluctance to cut interest rates, bolstering the dollar’s position. Market sentiment reflects a consensus that early rate cuts are unlikely, further supporting the dollar’s upward momentum.
Despite warnings from Japanese Finance Minister Shunichi Suzuki about FX movements, traders remain unfazed. The yen has shown little change against the dollar, but its overall weakness persists, with the dollar index increasing and the yen sliding to a 10-month low.
Dollar Index Performance and Fed Expectations:
The dollar index has climbed 0.2% for the week, driven by robust U.S. labor market data and a hawkish stance from Fed Chair Jerome Powell. Expectations for a rate cut at the Fed’s March policy meeting have dwindled significantly, according to CME Group’s FedWatch Tool.
The euro and sterling have demonstrated resilience amid the dollar’s strength, with officials from the European Central Bank and Bank of England pushing back against market expectations for early rate cuts.
New Zealand Dollar Strength and RBNZ Expectations:
The New Zealand dollar has risen, supported by expectations of delayed rate cuts from the Reserve Bank of New Zealand (RBNZ).
Stronger-than-expected jobs data has fueled speculation of potential rate hikes, with ANZ anticipating quarter-point hikes in February and April.
The Australian dollar has shown slight strength, while leading cryptocurrency Bitcoin has risen, on track for its best weekly performance in two months.
