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

Dollar drifts, no respite for yen after BOJ hikes rates as expected LONDON, June 16 : The dollar held near 10-day lows on Tuesday as a preliminary deal to end the Iran war buoyed risk appetite, while the yen teetered near the closely watched 160 level after the Bank of Japan hiked interest rates, as expected, in an effort to tame inflationary risks from the conflict. U.S. President Donald Trump said on Monday that a preliminary agreement to end the war in the Middle East had been signed by the U.S. and Iran. But doubts around the interim deal swirled and shippers said it could take weeks for confidence to return after any reopening of the Strait of Hormuz. A flurry of central bank meetings this week is also top of mind for investors. The Bank of Japan raised interest rates to a 31-year high on Tuesday as widely expected. But the board's 7-1 vote was noted by market analysts, suggesting at least some uncertainty over the timing of the next hike. Investors also closely followed a press briefing from BOJ Deputy Governor Shinichi Uchida. "We will look at economic, price and financial developments, particularly with an eye on the Middle East situation, for the time being. We'll look at whether the economy and prices are moving in line with our forecasts, as well as risks. With underlying inflation approaching 2 per cent, we need to be mindful of upward price risks. We will guide policy so that we won't fall behind the curve," he said. Derek Halpenny, head of research for global markets EMEA at MUFG, said that "looking at everything that's happened, the statements, the messaging, Deputy Governor Uchida, I think they were as hawkish as you could have 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 going forward," he said. The yen was almost unchanged on the day at 160.26 per U.S. dollar, having hovered near the 160 milestone in recent days and keeping traders wary of another bout of interventions from Tokyo. Elsewhere, the Reserve Bank of Australia left rates unchanged in a unanimous decision after three consecutive hikes even as inflation remains elevated. The Australian dollar was last down 0.1 per cent at $0.706. Later this week, monetary policy decisions are also due from the Bank of England and the U.S. Federal Reserve. IRAN DEAL LIFTS SENTIMENT BUT DOUBTS LINGER While global markets appeared cautiously optimistic over the Iran news and oil prices pulled back, the currency market reaction was comparatively constrained as traders awaited comments from central bankers across the globe. The dollar index, which measures the U.S. currency against six other units, was steady at 99.62. The euro was a touch higher at $1.16 and sterling was steady at $1.3418. Questions around supply chain normalisation are likely to keep investors on edge with the near-term pathway for inflation and interest rates still uncertain. ING analysts said the market reaction has been faster than realities on the ground, and it could be altered by the prospects of a deal. "A more durable repricing requires safe, predictable and insured shipping through the Strait of Hormuz," they said in a note. "And demand could likely be higher than usual as depleted reserves need to be replenished. Re-escalation risks are reduced, but not off the table."