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

The dollar nudged higher against the euro, yen ‌and ​pound on Tuesday, as traders braced for a barrage of central bank meetings that will shape the interest rate outlook, as well as 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 that policymakers give on their outlooks. Also helping the dollar, especially against safe-haven currencies such as the yen and Swiss franc, was greater calm ‌in the equity market, 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% at 157.73 yen, while the euro slid 0.26% to $1.1144 and the pound dipped 0.18% to $1.3319.

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.

The ⁠euro extended its fall slightly after the release of the ECB's quarterly Bank Lending Survey, which showed the impact of its rate hikes becoming visible. If that trend continues, it could, at the margin, reduce ⁠pressure on the ECB to continue with rate hikes deep into next year. In Britain, finance minister John Healey will announce his budget on Wednesday, and that helped keep the pound in check on Tuesday.

A ​key gauge of Japan's service-sector inflation rose 3.7% in September from a year earlier - a sign of increasing price pressures that are likely to keep the ⁠central bank on track for further interest rate hikes. Also in Japan, Finance Minister Satsuki Katayama said the government stood ready to take decisive action in the currency market, reminding markets of its willingness to prop up its currency.

The ⁠yen ​was among the best-performing major currencies last week, strengthening around 0.75% on the dollar, its biggest weekly gain since early September, as AI jitters in the equity market spurred a rush into the currency. TECH EARNINGS IMPACT

Meanwhile, the euro was on track to be the worst-performing developed market currency in October, down 1.5% on the dollar, bruised by high ⁠energy costs, 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 New Zealand dollar was outperforming ahead of that, up 0.3% to US$0.570. The Canadian dollar was steady at C$1.4021 to its US counterpart.

The broader market story will also be tested by a number of corporate earnings this week, not least from AI ‌hyperscalers Alphabet, Microsoft and Amazon.com.