Yen Rises on Strong GDP Data, Dollar Struggles Amid Rate Cut Bets
The Japanese yen strengthened on Monday following better-than-expected GDP data, while the Australian and New Zealand dollars held steady ahead of key policy decisions later this week.
Meanwhile, the U.S. dollar remained under pressure as traders reassessed weaker-than-anticipated U.S. economic data, reinforcing expectations of further Federal Reserve rate cuts in 2024.
Yen Gains as BOJ Rate Hike Bets Grow
The yen climbed 0.27% to 151.94 per dollar, reversing earlier session losses after data showed Japan's economy expanded faster than expected in Q4. The stronger growth bolstered expectations that the Bank of Japan (BOJ) may pursue further rate hikes this year.
Markets are now pricing in approximately 35 basis points of rate hikes from the BOJ by December.
“Even though the jump in Q4 GDP wasn’t broad-based, it supports our view that the Bank of Japan will tighten policy more aggressively than most expect,” said Marcel Thieliant, Head of Asia-Pacific at Capital Economics.
Dollar Remains Weak as Traders Digest U.S. Data and Trade Policy
The U.S. dollar struggled to regain lost ground after last week's selloff, triggered by weak U.S. retail sales data and delayed implementation of Trump’s reciprocal tariffs.
Geopolitical uncertainty remains a factor, with reports indicating that talks to end the Russia-Ukraine conflict will begin in Saudi Arabia this week—though the full list of participants remains unclear.
The euro edged closer to the $1.05 level, last trading at $1.0487, while sterling remained steady at $1.2582.
The dollar index stood at 106.79, following a 1.2% decline last week.
“The dollar’s weakness was driven by optimism that trade tariffs may not be as disruptive as feared—though that remains to be seen," said Rodrigo Catril, Senior FX Strategist at National Australia Bank.
He added, “The weaker U.S. data suggests the era of U.S. economic outperformance may be fading, weighing on the dollar.”
Australian and New Zealand Dollars Await Policy Decisions
The Australian dollar ticked 0.07% higher to $0.6357, ahead of the Reserve Bank of Australia’s (RBA) policy decision on Tuesday. The RBA is expected to deliver a 25-basis point rate cut, marking its first reduction in over four years as it joins other central banks in easing monetary policy.
Similarly, the New Zealand dollar edged 0.03% higher to $0.5734, with traders anticipating a 50-basis point rate cut from the Reserve Bank of New Zealand (RBNZ) on Wednesday.
Prices and figures quoted were correct at the time of writing.
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