Dollar steadies as investors consider post-Fed outlook, focus turns to BOJ meeting

By Gregor Stuart Hunter

SINGAPORE (Reuters) -The U.S. dollar held largely steady in early Asian trading on Friday as investors looked to fresh catalysts after the Federal Reserve’s meeting, with the greenback inching higher against the yen ahead of a policy decision from the Bank of Japan.

The dollar index tacked on 0.1%, recovering slightly from a three-and-a-half-year low on Wednesday after the Fed cut rates by 25 basis points but signalled it was in no hurry to reduce borrowing costs quickly in coming months. The U.S. currency remains on course for its third straight weekly loss.

Against the yen, the dollar was last up 0.1% at 148.085 yen after data earlier showed core consumer prices in Japan rose at their slowest pace in nine months.

The inflation report will be one of the factors the Bank of Japan will consider when it decides policy later in the day, with markets widely expecting it to keep interest rates steady at 0.5%.

“The interest is on whether there’s going to be any hints or potential teeing up of a move as early as the October meeting,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

The LDP leadership election to decide who will replace outgoing Prime Minister Shigeru Ishiba is likely to tie BOJ Governor Kazuo Ueda’s hands for now, he added. “Given that uncertainty, it’s hard to see governor Ueda giving any hints, so I assume we’ll get the normal platitudes,” he said. Veteran Japanese lawmaker Sanae Takaichi, a fiscal dove who is vying to become the country’s first female prime minister and is seen as the frontrunner in the race, will hold a press conference later today to explain her policies. Across the broader currency market, traders are weighing the long-term economic impact on the dollar, the preeminent global reserve currency, from the Trump administration’s barrage of tariffs on imported goods from overseas and a wider shakeup in policymaking.

The U.S. Supreme Court on Thursday set a date of November 5 for arguments it will hear concerning the legality of Trump‘s global tariffs in a major test of one of the Republican president’s boldest assertions of executive power that has been central to his economic and trade agenda.

Trump has also repeatedly criticised the Fed for not cutting rates quickly and more deeply, stoking concerns about the independence of the Fed.

On Thursday, the Trump administration asked the U.S. Supreme Court to let the president move ahead with firing Federal Reserve Governor Lisa Cook – a move without precedent since the central bank’s founding in 1913. The market is ramping up bets on further easing, with pricing of Fed funds futures implying a 91.9% probability of a 25-bp cut at the central bank’s October meeting, up from a 87.4% a day earlier, according to the CME Group’s FedWatch tool. Foreign demand for dollar-denominated fixed income assets remained healthy, with data from the Treasury Department showing overseas holdings of U.S. Treasuries rising to a record in July, surpassing previous highs for a third straight month, led by gains in holdings from Japan and the United Kingdom.