The US dollar was firmer against the yen and euro, ending the Asian session near its highest levels for the day up to that point, with the yen under pressure as the Bank of Japan's policy board began its two-day meeting, which is expected to keep interest rates unchanged, dealers said. The dollar rebounded strongly from a slight dip earlier in the Asian session in the wake of China's decision over the weekend to raise interest rates by 27 basis points, dealers said.
The market sold the yen down on expectations that the Bank of Japan will announce at the end of its meeting tomorrow that interest rates will remain unchanged, they said. "Financial market indicators suggest that the odds of a 25-basis-point rate hike are in the vicinity of 20 pct or less," United Overseas Bank (UOB) said in a market note.
"Despite the upward revision to fourth-quarter 2006 GDP, the recovery in consumer spending remains tentative and the modest expansion still appears to be largely dependent on capital spending and exports," UOB said.
Dealers said that after the Bank of Japan's decision the market would focus on Wednesday's meeting of the US Federal Open Market Committee. "While no change in [the] Fed funds target is expected, the market will be watching out for any change in tone from the Fed, particularly after the recent problem in the sub-prime market and the volatility in the equity markets," DBS said in a market note.