FOREX-Dollar set for weekly gain, yen softens ahead of Fed, BOJ meetings next week

The dollar was on track for a weekly gain versus major currencies while the yen drifted lower on Friday, ahead of a flurry of highly-anticipated central bank meetings next week, including of the U.S. Federal Reserve and Bank of Japan. Japan's biggest companies agreed with labour unions to raise wages by the highest level in 33 years on Friday, reinforcing views that the country's central bank is poised to make a landmark shift away from negative interest rates.

The dollar was on track for a weekly gain versus major currencies while the yen drifted lower on Friday, ahead of a flurry of highly-anticipated central bank meetings next week, including of the U.S. Federal Reserve and Bank of Japan.

Japan's biggest companies agreed with labour unions to raise wages by the highest level in 33 years on Friday, reinforcing views that the country's central bank is poised to make a landmark shift away from negative interest rates. Investors are watching other central bank decisions closely for signs of how quickly they will cut interest rates after a period of rapid rises to curb rampant inflation. The Bank of England and Swiss National Bank are also due to meet next week.

The dollar index - which tracks the U.S. currency against six major peers - dipped 0.1% on the day to 103.31. It is on course to snap a three-week losing streak with a 0.6% weekly gain. While the Fed is not expected to change interest rates, hotter-than-expected U.S. producer and consumer price data this week has led traders to rein in bets on future cuts.

Markets now price in a 59% chance of the Fed cutting rates in June, compared to 74% a week earlier, according to the CME FedWatch tool. "While we don't think the developments will be sufficient at this stage to prompt the Fed to adjust their plans for three rate hikes this year... it is likely that the Fed will display more caution over the inflation outlook in the near-term," currency analysts at MUFG said in a note.

The yen eased to 148.725 per dollar and is on course for a 1.1% weekly decline, its steepest since January. The Bank of Japan is close to ending eight years of negative interest rate policy, with internal preparations for an exit in the works since Kazuo Ueda took office as BOJ governor, sources familiar with the bank's thinking have previously told Reuters.

"A strong 'shunto' wage outcome is widely seen as the last piece of the puzzle that will prompt the BOJ to unwind its ultra-easy monetary policy," Carol Kong, a currency strategist at Commonwealth Bank of Australia, said ahead of the announcement. The euro was up 0.2% to $1.0899. The European Central Bank council last week began a discussion on when to reduce its own rates, council member Olli Rehn said on Friday. Sterling was broadly flat at $1.2754.

Bitcoin prices slipped as much as 7% in volatile trade from a record high touched on Thursday as risk sentiment took a hit. It was last down nearly 4% at $67,955.

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