Dollar softens amid trade optimism, central bank watch, offshore yuan jumps
The U.S. dollar snapped a six-day rally against the yen and extended a three-day falling streak versus the euro on Monday, as investors welcomed a possible U.S.-China trade deal and braced for a week packed with central bank meetings.
The U.S. Federal Reserve wraps up its two-day policy meeting on Wednesday, and rate decisions from the European Central Bank and the Bank of Japan are due on Thursday.
U.S. President Donald Trump said on Monday the U.S. and China were set to "come away with" a trade deal. He is expected to meet Chinese President Xi Jinping later this week in South Korea.
The Chinese offshore yuan rose to a more than one-month high against the dollar of 7.1028, up 0.28% on the day.
Prior to the market open, the People's Bank of China set the official yuan midpoint rate at 7.0881 per dollar, the strongest since October 15, 2024, and above a Reuters estimate of 7.1146.
"People's Bank of China continued to fix dollar/yuan lower," said Chris Turner, global head of forex research at ING, questioning whether such a move is just a gesture of goodwill ahead of Thursday's Trump-Xi meeting, or a sign that China wants to boost its domestic demand.
The Australian dollar gained 0.65% versus the greenback to $0.6557 as signs of progress in trade talks bolstered demand for higher-yielding assets.
EYES ON BOJ AND ECB MEETINGS
The dollar ended a six-session rising streak against the yen, which has been pressured by the appointment of new Prime Minister Sanae Takaichi, seen as a fiscal and monetary dove. Surging oil prices added further pressure on the currency and other oil-importing peers.
The greenback was down 0.20% at 152.59 , after hitting 153.26, its highest since October 10, in Asian trading.
Several analysts expect the so-called Japanese fiscal premium - due to concerns about Japan’s government spending outlook - to remain elevated and limit the scope for yen appreciation.
Meanwhile, with the ECB expected to keep both its policy stance and messaging unchanged this week, market attention will shift to Thursday’s BoJ meeting, where any hawkish signals could lend support to the yen.
The BoJ is likely to debate this week whether conditions are right to resume rate hikes as worries about a tariff-induced recession ease, though political complications may keep it on hold for now.
FED EXPECTED TO CUT BY 25 BPS
With a 25-basis-point Fed rate cut long priced in, markets will closely watch for any signs that the central bank may be preparing to wind down its quantitative tightening programme (QT).
The euro rose 0.15% to $1.1646.
Robust euro zone data last week bolstered expectations that the ECB will keep interest rates elevated for longer, offering fresh support to the single currency.
Surveys showed on Monday German business morale in October, while euro zone firms remained optimistic about their prospects.
Source: Reuters.com
