Dollar mixed as investors eye central bank decisions, trade talks

By Stefano Rebaudo and Rocky Swift

(Reuters) -The U.S. dollar was mixed on Monday, coming off a six-day rally against the yen and a three-day losing streak versus the euro, as investors braced for a week packed with central bank meetings and trade negotiations.

The U.S. Federal Reserve wraps up its two-day policy meeting on Wednesday, while rate decisions from the European Central Bank and the Bank of Japan are due on Thursday.

U.S. President Donald Trump said the U.S. and China were set to “come away with” a trade deal, as he is expected to meet Chinese President Xi Jinping later this week in South Korea.

The Chinese yuan rose to a more than one-month high against the dollar of 7.1103 ahead of that. 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.

EYES ON BOJ AND ECB MEETINGS

The yen extended its slide against the dollar for a seventh straight session, pressured by the appointment of new Prime Minister Sanae Takaichi, seen as a fiscal and monetary dove, while surging oil prices added further pressure on the currency and other oil-importing peers. But after the dollar touched 153.26, its highest since October 10, it fell back to trade down 0.05% at 152.80 yen.

Several analysts expect the so-called Japanese fiscal premium – due to concerns about Japan’s deteriorating fiscal outlook – to remain elevated and limit the scope for yen appreciation.

Meanwhile, with the ECB set to keep policy and messaging unchanged this week, the market’s focus is likely to be on the BoJ meeting on Thursday.

“There is risk that the Bank of Japan will hike rates, and any hawkish guidance could move the yen significantly,” said Bob Savage, head of markets macro strategy at BNY.

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.

Barclays strategists said the most market-moving outcome would be “an immediate end of QT along with a signal for imminent outright bill purchases to shore up bank reserves.”

They noted that similar shifts in the past have typically lifted risk assets, which are now showing a stronger positive correlation with the dollar.

“We also think the (U.S.) central bank, facing ever-tighter funding rates as reserves decline, will curtail quantitative tightening,” BNY’s Savage said.

The dollar index, which measures the greenback against some major peers, was little changed at 98.90.

The euro was steady at $1.1628, while the common currency strengthened to as high as 178.13 yen, an all-time high. The Swiss franc reached 192.27 yen, also a record.

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.

The Australian dollar gained 0.4% versus the greenback to $0.6541 as signs of progress in trade talks between the U.S. and China bolstered demand for higher-yielding assets.

“Looking ahead we think that (U.S.) dollar firmness is likely to remain in the near term,” Mahjabeen Zaman, head of foreign exchange research at ANZ, said on a podcast.

“Fed cuts are fully priced in for October and December meetings. So if anything, any cautious communication from the Fed would likely be more supportive for the U.S. dollar.”

In cryptocurrencies, bitcoin rose 1.8% to $115,441.69, and ether jumped 4% to $4,227.56.

“We’ve obviously had a pretty risk-positive start to the week, given the weekend news on the various trade discussions,” said Ray Attrill, head of foreign exchange research at National Australia Bank. “At the moment, I’d say positive risk sentiment is still, at the margin, playing negatively for the U.S. dollar.”

(Reporting by Stefano Rebaudo and Rocky Swift. Editing by Muralikumar Anantharaman and Mark Potter)