Dollar firm as US rates and earnings take center stage

By Alden Bentley and Amanda Cooper

NEW YORK/LONDON (Reuters) -The dollar ticked higher against the euro and yen in subdued trade after last week’s volatility, with markets taking their lead from the Fed’s higher-for-longer messaging and a firmer Wall Street ahead of results from megacap growth companies.

Dollar/yen was steady on Monday, up 0.08% ahead of the Bank of Japan’s (BOJ) policy review on Friday, trading at 154.75, a whisker away from last week’s 34-year low of 154.79 and close enough to the 155-level that is next on traders’ radars for possible intervention.

“There will be a focus on the BOJ meeting, but it is too soon for them to alter policy, and the market gives a change in rates no chance at all,” said Chris Weston, head of research at Pepperstone.

The dollar’s trade-weighted index was up 0.22% at 106.33, but off the five-month highs hit last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of U.S. rate cut expectations.

A cooling in Middle East tensions, which had driven the dollar, gold and oil sharply higher on Friday and battered stock markets, also helped temper volatility. Tehran downplayed Israel’s retaliatory drone strike, in what appeared to be a move aimed at averting regional escalation.

“The fact that the equities are up a little bit today as tensions ease a bit is what we’re focused on,” John Doyle, vice president of trading and dealing at Monex USA in Washington, said. “We’re expecting a fairly easy day as we kind of put that in the rear view mirror and look toward the earnings season.”

Last week, Deutsche Bank’s index of currency volatility rose 9.7% to its highest since February.

Besides the BOJ meeting and earnings due from megacaps like Tesla on Tuesday, Meta on Wednesday and Microsoft, and Alphabet on Thursday, investors will get U.S. first-quarter gross domestic product data on Thursday and the inflation metric the Fed targets, the personal consumption price expenditures (PCE) index.

“FX has been center-stage for the last few weeks and might take a backseat this week as earnings take center-stage,” XTB research director Kathleen Brooks said.

The strong dollar prevailed at last week’s International Monetary Fund/World Bank spring meetings in Washington too, and the U.S., Japan and South Korea issued a rare joint statement on the issue.

Speaking after the Group of 20 (G20) finance leaders’ meeting in Washington, BOJ Governor Kazuo Ueda said the Japanese central bank may raise interest rates again if the yen’s declines significantly push up inflation, highlighting the dilemma the weak currency has become for policymakers.

A rethink on Fed easing has led to a general repricing of global rate cut timelines, but expectations for the European Central Bank (ECB) and the Bank of England (BoE) to start cutting by mid-year are still intact.

The euro, which is heading for its biggest monthly drop against the dollar since January, was down 0.27% at $1.0628, while sterling fell 0.54% to $1.2302.

Analysts do not see too much room for U.S. Treasury yields to rise further, given the light economic data calendar for the rest of the month and how far they have already risen as investors reprice Fed expectations.

Bitcoin was last up 2% at $65,947. The world’s largest cryptocurrency completed its “halving” at the weekend, a phenomenon that happens roughly every four years and aims to reduce the rate at which bitcoins are created.

(Additional reporting by Vidya Ranganathan in Singapore; Editing by Jamie Freed, Mark Potter and Alexander Smith)