Anna 
The U.S. dollar encountered challenges in maintaining gains on Monday, with central bank decisions in Japan and Europe, coupled with fluctuating market expectations for Fed rate cuts, contributing to a pause in its recent rally.
Notably, the Japanese yen exhibited movement, rebounding from Friday’s one-month low against the dollar. The yen has been impacted the most against the dollar this year, experiencing a swift reversal from December’s bounce to five-month peaks.
The Bank of Japan’s two-day meeting commenced on Monday, and while expectations for an exit from negative rates have diminished, traders noted the influence of the expiry of a significant amount of currency options this week. The yen’s movement was attributed to hedging around these contracts, with a cumulative amount of around $2.6 billion.
The U.S. dollar’s trade-weighted index edged down 0.09% to 103.19, while against the euro, it remained flat at $1.0901. The dollar’s rally this year has been hesitant, influenced by uncertainties about when the Federal Reserve will initiate rate cuts. Last week’s data indicating resilient U.S. economic activity tempered expectations of imminent rate cuts, leading to a scaling back of predictions for March and favoring May for potential rate cuts.
The upcoming week is marked by significant events, including policy meetings of the European Central Bank (ECB), Canada, and Turkey, along with a busy earnings season. The ECB’s inflation outlook and expectations for potential rate cuts will be closely observed, with market analysts anticipating a reduction in borrowing costs.
U.S. stocks have been on an upward trajectory, with the S&P 500 achieving a record high close for the first time in two years. Sterling, despite a fall last week following disappointing retail sales data, was trading at $1.2716, supported by the expectation that the Bank of England is less likely to cut rates as swiftly as the ECB or the Fed.
