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Dollar Pushes Higher Vs. Yen as Fed Rate Cut Expectations Wane

Investing.com - The dollar pushed higher against the yen on Monday as investors tempered expectations for an aggressive Federal Reserve interest rate cut later this month.

The dollar rose 0.2% against the yen to 107.92 by 03:20 AM ET (07:20 GMT) thanks to a rise in U.S yields.

The benchmark 10-year Treasury yield stretched Friday's modest gains and climbed to 2.06%.

Still, the broad decline in equity markets limited the rise in safe-haven Treasury yields.

"A factor which could guide stocks lower this week are tweets by U.S. President Donald Trump pertaining to trade issues with China," said Junichi Ishikawa, senior forex strategist at IG Securities.

"Stocks could decline if he continues to make challenging trade comments directed at China this week."

Trump maintained pressure on Beijing last week by renewing a threat to impose tariffs on another $325 billion of Chinese goods, even as hopes grew that the two sides could soon resume face-to-face negotiations in a bid to end their year-long trade war.

The U.S. dollar index was holding steady at 96.83 after gaining 0.35% last week.

Currency-market focus was squarely on global central bank decisions scheduled for the next two weeks, starting with the European Central Bank which meets on Thursday followed by the Bank of Japan and then the Fed next week.

"The moment of truth is now around the corner as central banks will be forced to unveil their policy intentions," analysts at JPM Chase & Co said in a note.

Expectations for a 50-basis-point Fed cut soared last week after a dovish speech by New York Fed President John Williams. But investors tempered expectations after a Fed spokesman clarified that the remarks did not refer to potential policy action at the upcoming Fed meeting.

Expectations for a larger cut were scaled back even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month, and may make further cuts in the future given global growth and trade uncertainties.

"The possibility of a 50 bps cut has almost dissipated following the WSJ report and the New York Fed's attempt to tone down earlier comments by Williams," wrote Kenji Yamamoto, economist at Daiwa Securities.

The euro was little changed at 1.1220 after shedding 0.5% on Friday.

Elsewhere, investors are waiting to see if Boris Johnson wins the British Conservative Party's leadership race. The British pound held around 1.2494, staying on the back foot as concerns over the prospect of a no-deal Brexit continue to build.

"We're likely to be marking time ahead of those big risk events later in the week," National Australia Bank FX Strategist Rodrigo Catril said. "The market is still licking its wounds post Fed Williams' backtracking."

--Reuters contributed to this report

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