Dollar Down, But Focus is on Pound’s Brexit Woes and Japan’s PM Vote

By Gina Lee

Investing.com – The dollar was down on Monday morning in Asia, but the focus centered on the British pound and Japanese yen.

The pound rallied from its fall during the previous session over increasing fears of a hard Brexit. In Japan, the ruling party will vote in a new leader later in the day, with the winner widely expected to replace incumbent Prime Minister Shinzo Abe.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.16% to 93.192 by 11:57 PM ET (4:57 AM GMT) and rolled over to the December contract on Sunday.

Investors await the U.S. Federal Reserve’s policy meeting, scheduled for Wednesday, with further monetary easing widely expected. But some investors cautioned against setting those expectations too high.

“Having set aside yield curve control as a near-term policy option, the FOMC does not seem to have an operational consensus on how to use the balance sheet,” Standard Chartered (OTC:SCBFF) Bank strategists said in a note.

“This may disappoint investors,” they added.

Other central banks, including Bank of Japan and Bank of England, are due to announce their policy decisions on Thursday.

The GBP/USD pair was up 0.22% to 1.2821, despite fears that the U.K. would exit from the European Union (EU) with no trade deal mounting and putting pressure on the pound.

London acknowledged during the previous week that it could break international law “in a very specific and limited way.” The comments led to backlash from European Commission president Ursula von der Leyen, as well as former prime ministers. Tony Blair and John Major said on Sunday Britain must drop the “shocking” plan to pass legislation breaking its divorce treaty with the EU, in a breach of international law.

The USD/JPY pair inched down 0.04% to 106.09 ahead of the ruling Liberal Democratic Party’s vote for a new leader, due to take place later in the day. Chief Cabinet Secretary Yoshihide Suga is predicted to win in a landslide victory, with the successor to Abe expected to be appointed on Wednesday.

Investors expect few radical changes, with Suga widely expected continue Abe’s current policies if appointed.

“The focus is on the line-up of his cabinet as well as whether he will call a snap election,” MUFG Bank chief FX strategist Minori Uchida told Reuters.

But he added, “He is saying he will continue and advance Abenomics but it is questionable how much advancement he can make."

The AUD/USD pair inched down 0.03% to 0.7281 while the NZD/USD pair was up 0.46% to 0.6694.

The USD/CNY pair inched down 0.04% to 6.8301. China is scheduled to release industrial production and retail sales data on Tuesday.