Dollar holds gains; yen on guard ahead of BOJ decision
The dollar held gains on Thursday as traders trimmed bets of another U.S. rate cut this year while also awaiting further details of the outcome of a meeting between U.S. President Donald Trump and China's leader Xi Jinping.
Trump said a trade deal with China could be signed on Thursday as he met with Xi in South Korea, while the Chinese president similarly told his U.S. counterpart that trade negotiators from the world's two largest economies had reached a basic consensus on a deal.
While the highly anticipated meeting concluded without much fanfare and reaction in currencies was largely muted, the overall market mood was buoyant as investors bet on a further thaw in icy trade relations between the two nations.
That left the dollar clinging to overnight gains, steadying near a two-week high at 99.025 against a basket of currencies.
The euro was up 0.13% at $1.1616, having weakened 0.43% in the previous session. Sterling languished near a 5-1/2-month low and last bought $1.3204.
The Federal Reserve on Wednesday lowered rates by 25 basis points as expected and said it will end its balance sheet drawdown on December 1.
But Fed Chair Jerome Powell took the punch bowl away by saying a policy divide within the central bank and a lack of data due to a federal government shutdown may put another rate cut out of reach this year.
"Clearly, the FOMC is divided on the policy outlook from here and with the government in shutdown still, I think Powell wants to approach policy more cautiously," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
"We still expect a cut in December, but obviously with Powell's cautious comments, the risk is that a rate cut is delayed to 2026."
The market odds of the Fed delivering another quarter-point cut in December have eased to around 68%, having been nearly fully priced before Wednesday's decision.
WAITING ON THE BOJ
Elsewhere, focus was also on a Bank of Japan policy decision due later in the day. The central bank is seen keeping rates steady but is likely to reiterate its resolve to continue pushing up still-low borrowing costs.
Ahead of the outcome, the yen was languishing near an eight-month low against a resurgent dollar and last stood at 152.46.
It similarly held near an all-time low against the euro at 177.12.
"I think the most interesting thing to look out for is the vote. At the last meeting, two out of nine board members were in favour of a 25-basis-point rate hike. So it will be interesting to see how many officials are calling for a hike at this meeting," said CBA's Kong.
"We know that the BOJ tends to be more politically sensitive. So given the Takaichi administration has just been elected, and they are now compiling another economic package, I think the BOJ will stay cautious in the very near term."
Some investors are betting Sanae Takaichi's premiership could complicate the BOJ rate outlook, given she is an advocate of loose monetary policy.
In other currencies, the Australian dollar rose 0.26% to $0.6591, while the New Zealand dollar gained 0.24% to $0.5778.
Both Antipodean currencies were helped by a stronger yuan, which advanced to a near one-year peak against the dollar on Thursday on the Sino-U.S. trade optimism.
The onshore yuan rose to a high of 7.0955 per dollar, its strongest level since November 4, 2024.
