Dollar takes breather, BOJ and ECB meets top of mind
By Vidya Ranganathan and Alun John
SINGAPORE/LONDON (Reuters) -Global currencies steadied on Monday as looming central bank decisions in Japan and Europe and vacillating market expectations for U.S. Federal Reserve rate cuts forced a pause in the dollar's data-spurred rally this year.
Japan's yen was one of the bigger movers, heading away from Friday's 148.80 per dollar, its weakest in a month, to as firm as 147.74, as the Bank of Japan started its two-day policy meeting.
Wagers for an exit from negative rates at this meeting have been wound down following the New Year's Day earthquake on Japan's west coast, alongside dovish BOJ commentary.
The currency, which is sensitive to the difference in interest rates between the U.S and Japan has been the worst hit against the dollar this year, tumbling about 5% in a swift reversal of December's bounce to five-month peaks near 140.
«The policy convergence story drove down dollar-yen towards the end of last year, and after New Year we've seen some reversal of that because the market's expectations for Fed rate cuts have been pushed back a little bit and expectations for a BOJ rate hike have also been pushed back,» said BofA chief Japan FX/rates strategist Shusuke Yamada.
«We have BOJ tomorrow, and I think the market wants to see the outcome before doing anything (further),» he said adding he did not expect «anything major from the BOJ tomorrow».
Traders said one factor driving the yen moves was the expiry of a large amount of currency options this week and the hedging around those contracts.
LSEG data showed that while most options expiring between Monday and Thursday with strike prices between 147.15 and 148.10 dollar-yen levels were small, the cumulative amount was around
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