Dollar steady, no respite for yen after BOJ hikes rates as expected

NEW YORK, June 16 : The dollar was modestly weaker against the euro on Tuesday as investors awaited the conclusion of the Federal Reserve's policy meeting the following day, the first chaired by Kevin Warsh, with markets watching for any signals that the central bank could raise interest rates later this year.

The greenback has held relatively firm despite rising optimism that the United States and Iran will soon end their war, which has sent Treasury yields and oil prices lower.

“The Fed decision may be keeping the dollar sellers at bay,” said Adam Button, chief currency analyst at investingLive. “There's a lingering sense in markets that (Warsh is) more of a hawk than he let on during confirmation.”

The pullback in oil prices could help ease inflation pressures, which have led markets to price in 59 per cent odds of a rate hike by year-end.

But with inflation still well above the Fed's 2 per cent target, Warsh may strike a hawkish tone at his post-meeting press conference. The Fed is widely expected to hold rates steady at 3.50 per cent to 3.75 per cent and could drop its easing bias from the policy statement.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.08 per cent to 99.61, with the euro up 0.09 per cent at $1.1601.

The Japanese yen was flat against the greenback at 160.35 per dollar, after the Bank of Japan raised its benchmark rate by 25 basis points as expected to 1 per cent, its highest level since 1995, in a bid to curb inflationary risks stemming from the Middle East conflict.

The board's 7-1 vote, however, left some uncertainty about the timing of the next hike.

Derek Halpenny, head of research for global markets EMEA at MUFG, said the BOJ was as hawkish as could have been expected.

"They've emphasized upside inflation risks. They've made that quite clear. They've made very clear that the monetary stance is still accommodative, and they've made clear that the guidance is the same as before, which is essentially that they can continue to raise rates," he said.

The Reserve Bank of Australia, meanwhile, held rates steady at 4.35 per cent in a unanimous decision, its first pause this year, even as inflation remains elevated. The Australian dollar was last little changed at $0.7072.