Dollar slips ahead of busy week for central banks

The U.S. dollar weakened against a basket of its major rivals on Monday, as traders prepared for a week filled with monetary-policy updates from Japan, the U.S. and the U.K.

The ICE U.S. Dollar Index DXY, -0.34%  was down 0.4% at 94.325, while the broader WSJ Dollar Index BUXX, -0.21%  was down 0.2% at 88.08.

This gave the greenback’s main rival, the euro EURUSD, +0.4290% room to rally to $1.1709 compared with $1.1656 late Friday.

The Bank of Japan policy update due early Tuesday Eastern time, followed by the Federal Reserve’s update on Wednesday and the Bank of England on Thursday.

While the conclusion of the Fed meeting on Wednesday is expected to be something of a nonevent, Japan’s central bank could lower its inflation target to 1.5%, market participants speculated.

There is also speculation that the Bank of Japan could change the yield target for the 10-year Japanese government bond TMBMKJP-10Y, +2.08%

“Even if they tell us they are talking about making changes that is likely to be enough for the market to try and take the yen stronger,” said Brad Bechtel, managing director in FX at Jefferies.

But “while I do think the kneejerk will be yen stronger, dollar-yen lower, I think this is such a consensus trade now that it will be hard for the pair to run for very long,” he added.

The Japanese yen USDJPY, +0.01%  was slightly weaker versus the greenback on Monday, with one dollar buying ¥111.02, up from ¥111.04 late Friday in New York.

The Bank of England policy meeting will also be closely watched as “traders will see how the U.K. central bank will try to balance its desire to return to normalization with the looming prospect of no deal Brexit that could wreak economic havoc across multiple industries,” said Boris Schlossberg, managing director of FX strategy.

The central bank led by Gov. Mark Carney is expected to lift rates by 25 basis points, or a quarter of a percentage point, to 0.75%.

The British pound GBPUSD, +0.2213%  last fetched $1.3135, up slightly from $1.3104 late Friday.

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