In early Asian trading on Monday, the euro and yen held steady while the U.S. dollar maintained its position near recent highs following last week's flurry of policy and geopolitical developments.
Investors are closely monitoring the yen this week, with the Bank of Japan's policy review on Friday being a key event on the economic agenda.
The yen hovered around 154.70 per dollar, not far from the 34-year low of 154.79 it hit last week, prompting traders to keep a close eye on the 155-level for potential intervention by Japanese authorities.
The dollar's trade-weighted index remained above 106 but retreated from the five-month highs reached last week after comments from Federal Reserve officials and higher-than-expected inflation data tempered expectations for rate cuts.
The easing of tensions in the Middle East, which had driven sharp increases in the dollar, gold, and crude oil prices on Friday, also contributed to a reduction in volatility. Iran downplayed Israel's retaliatory drone strike, easing concerns about regional escalation.
Chris Weston, head of research at Pepperstone, noted that while the focus is on the BOJ meeting, it's unlikely for them to alter policy at this time, with the market not pricing in any changes in rates.
At the recent International Monetary Fund/World Bank spring meetings in Washington, the strong dollar dominated discussions, leading to a rare joint statement from the United States, Japan, and South Korea on the issue.
Following the G20 finance leaders' meeting in Washington, Bank of Japan Governor Kazuo Ueda mentioned that the central bank might consider raising interest rates if significant yen depreciation substantially increases inflation, underscoring the challenges posed by the weak currency for policymakers.
Despite the reevaluation of Fed easing expectations, projections for rate cuts by the European Central Bank (ECB) and Bank of England (BoE) by mid-year remain unchanged.
ECB policymaker Madis Muller suggested that the central bank could implement further interest rate cuts by the end of the year if inflation behaves as anticipated, echoing remarks made by ECB President Christine Lagarde. However, ECB's Robert Holzmann expressed skepticism about rate cuts if the Fed doesn't act.
In the UK, BoE Governor Andrew Bailey and Deputy Governor Dave Ramsden hinted at the expected slowdown in inflation. The British pound reached $1.2367, its lowest level since mid-November, on Friday.
Analysts believe there's limited room for U.S. Treasury yields to increase further, considering the sparse economic data calendar for the rest of the month and the significant rise in yields driven by investors adjusting their Fed expectations.
Two-year notes have seen yields rise by 38 basis points this month to reach current five-month highs around 5.0070%.
Bitcoin saw a 1% increase, reaching $64,832, following its "halving" over the weekend, a process that occurs approximately every four years to reduce the rate at which new bitcoins are generated.
Paraphrasing text from "Investing" all rights reserved by the original author.
