Asia FX firms, dollar edges lower with BOJ, Fed meetings in focus

 Most Asian currencies firmed on Monday, while the dollar fell slightly as focus turned to upcoming meetings at the Bank of Japan and the Federal Reserve in the coming days.

Markets remained largely on edge over the Middle East conflict, after the U.S. and Iran backed out of talks in Pakistan over the weekend.

A host of major economic readings are also due in the coming days, offering markets more insight into the impact of the Iran war.

Japanese yen steady; BOJ set for hawkish hold 

The Japanese yen’s USD/JPY pair fell slightly on Monday, remaining below the closely watched 160 yen level.

The BOJ is widely expected to leave interest rates unchanged at 0.75% on Tuesday, although some analysts said a 25 basis point hike was still possible.

The central bank is likely to offer a hawkish outlook on policy, especially in the face of sticky inflation and price pressures stemming from the Iran conflict.

But a hold and a less hawkish stance than markets are expecting could weigh on the yen. The currency was nursing deep losses in March and dithered in April as markets questioned if the BOJ had enough headroom to raise rates further.

Dollar falls slightly, Fed meeting on tap 

The dollar index and dollar index futures fell about 0.1% apiece in Asian trade, pulling back slightly after logging strong gains last week.

The greenback was buoyed by safe haven demand in the face of the Iran conflict, while expectations of more hawkish global central banks also supported the greenback.

The Federal Reserve is set to meet later this week and is widely expected to leave rates unchanged, amid increasing economic uncertainty from the Iran war.

The meeting could be the last for Chair Jerome Powell, after U.S. lawmakers signaled on Sunday they would allow the Senate confirmation of Fed Chair nominee Kevin Warsh to proceed.

This was after the Department of Justice dropped an investigation into Powell last week, following demands from Republican lawmakers.

Warsh had testified before Congress that he had made no commitments to cut interest rates if confirmed as Fed chair. He was also viewed as a less dovish pick than markets were expecting.

Asia FX firms with inflation, PMI data on tap 

Broader Asian currencies firmed amid some improvement in risk appetite, especially after U.S. President Donald Trump said he remained open to talks with Iran.

An Axios report said Iran had offered the U.S. a new proposal to reopen the Strait of Hormuz, although the offer also entailed postponing discussions over Tehran’s nuclear program– which could be a major sticking point for Washington.

Among Asian currencies, the Australian dollar’s AUD/USD pair rose 0.3%, reflecting some improvement in risk appetite.

Markets were also positioning for a strong first-quarter consumer price index inflation reading, due later in the week. The print is likely to further expectations for more interest rate hikes by the Reserve Bank of Australia.

The Chinese yuan’s USD/CNY pair fell 0.1%, with the currency remaining close to its strongest level in three years.

Chinese purchasing managers index data for April is due this week, and is set to offer more cues on business activity in Asia’s largest economy. Prints for March showed some pick-up in activity, with focus squarely on whether this momentum can be maintained.

Among other Asian units, the South Korean won’s USD/KRW pair fell 0.4%, while the Singapore dollar’s USD/SGD pair shed 0.1%.

The Indian rupee lagged, with the USD/INR pair pushing further above the 94 rupee level.