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Dollar Weaker Against Yen In Early Asia Ahead of US Public Holiday

1/15/2018, 10:35:48 AMMarket Analysis
Dollar Weaker Against Yen In Early Asia Ahead of US Public Holiday

The dollar eased against the yen in early Asia on Monday in a light data day with US markets closed for the Martin Luther King public holiday.

USD/JPY changed hands at 110.99, down 0.06%, while AUD/USD traded at 0.7917, flat. Investors digested a busy weekend of news, including prospects that Germany may soon be heading into a fresh coalition government, though some remarks suggest the deal remains a work-in-progress. EUR/USD traded at 1.2199, up 0.02%.

The US dollar index, which measures the greenback against a basket of currencies, was last quoted down 1.13% to 90.62.

In the holiday-shortened week ahead, the U.S. economic calendar will be light, with a report on the housing sector expected to draw the most attention.

China is slated to release what will be closely watched fourth-quarter growth data, while in Europe investors will await monthly inflation data to assess how fast the ECB could start unwinding its asset purchase program

Last week, the euro rallied to more than three-year highs against the dollar on Friday as the single currency was boosted by hopes that the European Central Bank will begin to scale back its massive monetary stimulus program this year.

The euro strengthened broadly after Thursday’s minutes of the ECB’s December meeting said officials could consider a gradual shift in policy guidance from early 2018. Any changes to the bank’s guidance would likely be seen by investors as an indication that policymakers are preparing to start winding down their bond buying stimulus program.

The minutes also showed that policymakers see a “continued robust and increasingly self-sustaining economic expansion.” The euro received an additional boost after German Chancellor Angela Merkel moved closer to forming a coalition government, potentially removing an element of political risk for the euro zone.

The stronger euro weighed on the dollar, sending the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, down 1.13% to 90.62, its lowest level since January 2015.

A strong move higher in sterling also pressured the dollar lower. The pound was boosted higher by a report that the Netherlands and Spain are open to a deal for Britain to remain as close as possible to the European Union after Brexit.

The strong moves higher in the euro and the pound meant that the dollar failed to gain momentum from data on Friday showing that underlying U.S. consumer prices recorded their largest increase in 11 months in December, adding to expectations that inflation will accelerate this year.