Currency markets steady, busy week ahead for investors

By Kevin Buckland and Alun John

TOKYO/LONDON (Reuters) -The US dollar weakened slightly on Monday, at the start of an action-packed week for markets with Britain’s budget, a European Central Bank meeting, US jobs data and important political moments in both China and the US all due.

Eyes were also on Bitcoin, which rose to a more than two-year peak above $64,000 after a quiet weekend, pushed higher in recent weeks by big flows into cryptocurrency exchange-traded funds, above all in the United States.

The euro was a fraction firmer at $1.08455, sterling was up 0.13% at $1.2670 and the Japanese yen fluctuated around the closely watched 150 per dollar level. The dollar was last up 0.17% at 150.39 yen.

That left the dollar index – which measures the currency against six major peers – flat at 103.78, oscillating narrowly in the bottom half of its 103.43-104.97 range of the past month.

“It’s going to be a busy week ahead for ‘event risk’ in the US and Europe, which could certainly trigger some pick up in volatility from the current very low levels,” said Lee Hardman, senior currency analyst at MUFG.

He added there were reasons why the major events could, in isolation, each leave markets unmoved.

In the United States, Federal Reserve Chair Jerome Powell tests before lawmakers on Wednesday and Thursday, and then there is US payrolls data on Friday, with forecasts pointing to a still-solid rise of 200,000 after January’s barnstorming 353,000 jump.

This week also sees ‘Super Tuesday’ for the US presidential primaries.

“Payrolls could be the bigger mover as Powell is likely comfortable with current market pricing for Fed cuts, while if we get another strong payrolls after the last blowout report that could affect market expectations (for Fed policy),” Hardman said.

At the start of 2024, markets were pricing in substantial interest rate cuts early this year, but traders have since reduced such bets.

Pricing in derivatives markets now reflects expectations the first Fed cut will come in June, with three to four 25 basis point cuts this year, not far from the Fed’s projections published in December.

As expectations for other central banks, notably the European Central Bank and Bank of England, have moved in near lockstep, currency volatility – partly dependent on changing interest rate differentials – has been strikingly low, and is at its lowest level since the start of the war in Ukraine.

The British budget is due on Wednesday, and Finance Minister Jeremy Hunt has been trying to dampen speculation about big pre-election tax cuts. The European Central Bank meets on Thursday.

Most ECB policymakers have been cautious about suggesting that they will cut interest rates soon.

Hardman said last week’s stronger-than-expected euro zone inflation data meant the ECB would be unlikely to say anything at this week’s meeting to cause markets to bring forward expectations of the first rate cut, currently seen in June.

The Swiss franc strengthened a touch after Swiss February inflation came in a fraction higher than expected at 1.2% compared to the previous year, although still lower than January’s level and well within the Swiss National Bank’s 0-2% target range.

The currency gave back some of those knee-jerk gains and versus the franc, the dollar was down 0.07% at 0.8824 francs and the euro dipped 0.06% to 0.9566.

The Australian dollar was down 0.15% at $0.6516 with traders awaiting local GDP data Wednesday. China’s annual parliament meeting begins Tuesday, at which authorities will announce the GDP goal and are expected to unveil moderate economic stimulus plans.

(Reporting by Kevin Buckland in Tokyo and Alun John in London; Additional reporting by Ankur Banerjee; Editing by Michael Perry and Bernadette Baum)