TOKYO- The dollar traded near a four-week high versus the euro on Thursday after signs of some stickiness in US inflation reinforced expectations that the Federal Reserve would avoid a super-sized interest rate cut next week.
Meanwhile, a quarter-point rate reduction from the European Central Bank (ECB) is widely expected later in the day, with investors anxious for hints on how soon the monetary authority will cut again.
The dollar gained against the yen, following a turbulent session the previous day that saw the US currency slide as much as 1.24 percent to the lowest this year before recovering all its losses after the consumer price data.
Early on Wednesday, Bank of Japan board member Junko Nakagawa reinforced the central bank’s tightening bias by saying low real rates leave room for further rate hikes.
On Thursday, fellow BOJ board member Naoki Tamura, known as a policy hawk, said the market’s expected pace of tightening could be too slow – comments that helped mitigate yen losses.
The speeches are a sign of an important shift in communication style at the bank, according to Shoki Omori, chief Japan desk strategist at Mizuho Securities.
“The BOJ is trying to get markets to price in a hike using forward guidance instead of using media outlets, which is a good change,” he said.
“But markets aren’t used to it, so that’s one reason why yen volatility has risen in recent weeks.”
The dollar rose 0.31 percent to 142.805 yen as of 0505 GMT, after earlier gaining as much as 0.41 percent . It dipped as low as 140.71 for the first time since Dec. 28 in the prior session, following Nakagawa’s comments.
The rebound in the dollar-yen pair “has left signs of downside capitulation at the 140.71 low, … opening the way for a recovery back towards 145.50,” said Tony Sycamore, an analyst at IG.
