Dollar firms ahead of central bank meetings, steadier stocks stall safe haven play

LONDON Oct 27 : The dollar nudged higher on the euro, yen and pound on Tuesday, as traders braced for a barrage of major central bank meetings that will shape the interest rate outlook, as well as key corporate earnings that could ripple through all asset classes.

The Federal Reserve is set to announce its latest policy decision on Wednesday, the European Central Bank is up on Thursday, and the Bank of Japan rounds out the week on Friday.

All three are expected to keep rates on hold, so the focus will be on any hints policymakers give on their outlook.

Also helping the dollar, especially on safe havens like the yen and Swiss franc, was greater calm in the equity market which was roiled last week by renewed worries about high-flying AI stocks.

"The dollar has found good support early this week, as stabilising AI-related sentiment has allowed markets to reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices," said Francesco Pesole, currency analyst at ING.

The US currency was up 0.16 per cent on the yen at 157.73, while the euro slid 0.17 per cent to $1.1154 and the pound dipped 0.14 per cent to $1.3324.

 Pesole also said he thought markets were positioning ahead of the Fed meeting, anticipating Chair Kevin Warsh will reiterate his commitment to fighting inflation, something that will reinforce the floor under the dollar.

Several other factors are in the mix as well and a key gauge of Japan's service-sector inflation rose 3.7 per cent in September from a year earlier, data showed on Tuesday, a sign of increasing price pressures that will likely keep the central bank on track for further interest rate hikes.

Also in Japan, Finance Minister Satsuki Katayama said on Tuesday the government stood ready to take decisive action in the currency market, reminding markets of Tokyo's willingness to intervene to prop up its currency. 

TECH EARNINGS IMPACT

The broader market story will also be tested by a number of corporate earnings this week including from AI hyperscalers Alphabet, Microsoft and Amazon.com.

The yen was among the best-performing major currencies last week, strengthening around 0.75 per cent on the dollar, its most since early September, as AI jitters in the equity market spurred a rush into the currency.

Meanwhile, the euro was on track to be the worst-performing developed market currency in October, down 1.5 per cent on the dollar, bruised by high energy costs, and the volatility in French government bonds and worries about France's fiscal position.

The Reserve Bank of New Zealand and the Bank of Canada also announce their policy decisions on Wednesday, with both expected to raise interest rates.

The RBNZ meets on Wednesday, and the New Zealand dollar was outperforming ahead of that, up 0.1 per cent on the dollar on Tuesday at $0.5687.

 The Canadian dollar was steady at $1.4021 to its US counterpart.