The dollar experienced losses on Monday, while the euro and sterling remained stable in anticipation of their respective central bank decisions this week. Attention is firmly directed towards the rate outlooks across major economies as the new year draws near. Currencies predominantly maintained narrow ranges during Asian trading hours, as market participants prepared for a hectic week that includes the upcoming U.S. inflation data and the highly scrutinized nonfarm payrolls report. The New Zealand dollar declined by 0.43% to $0.5777, following comments from the nation’s leading central banker on Monday that tempered expectations for interest rate increases in the coming year. Reserve Bank of New Zealand Governor Anna Breman emphasized the trajectory for the benchmark official cash rate in last month’s monetary policy statement, suggesting a marginal likelihood of an additional rate cut in the near future. “I suppose that minor risk of a cut surprised NZD longs,” stated Christopher Wong.

In other developments, the yen appreciated following a significant survey released on Monday, which indicated that the business sentiment among major Japanese manufacturers reached a four-year peak in the quarter ending December. The Japanese currency appreciated by 0.3%, reaching 155.39 per dollar. The survey results bolstered anticipations that the Bank of Japan is likely to increase rates later this week, while focus will be directed towards insights from Governor Kazuo Ueda concerning the forthcoming rate-hike trajectory. “We’ve long anticipated a hike in December, but I believe it will be a dovish hike,” stated Joseph Capurso. “In Japan, the prime minister exhibits a clear aversion to rate hikes, while the governor demonstrates a notably cautious approach.”

This week will see rate decisions from the Bank of England and the European Central Bank. The markets appear to have nearly accounted for a rate cut by the BoE, as the persistently high inflation in the UK indicates a potential decline, whereas the consensus suggests that the ECB will maintain its current stance. Market participants have started to consider the possibility of a rate increase from the ECB in 2026. Sterling experienced a decline of 0.15%, trading at $1.3360 in early Asia trade on Monday, whereas the euro saw a slight decrease of 0.03%, positioned at $1.1736. “Regarding the BoE, I believe it will be quite intriguing. I think it’s going to be a finely balanced decision to cut,” said Capurso. “There is a potential risk that the inflation data released this week could eliminate some of the pricing for subsequent rate cuts.” On Wednesday, the British inflation data will be released. In the United States, a series of postponed data resulting from the historic government shutdown is poised for release, providing investors with a long-awaited insight into the performance of the world’s largest economy. The jobs report for November is scheduled for release on Tuesday, and inflation data will be available on Thursday. The dollar remained near a two-month low reached last week, currently positioned at 98.37 against a basket of currencies. “This upcoming data is somewhat dated as well, and also is affected by the government shutdown, so there’s a lot of noise in data,” stated Sim Moh Siong.

“From the perspective of policymakers… this set of data, regardless of the outcome, is likely to be interpreted with greater caution than usual.” The primary objective is to extract the trend regarding the labor market in the U.S.. The Federal Reserve, exhibiting a split in opinions, reduced interest rates last week. However, Chair Jerome Powell indicated that borrowing costs are not expected to decrease further in the immediate future as they seek additional economic clarity. U.S. President Donald Trump indicated on Friday that he is favoring either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett to take the helm of the central bank next year. On Monday, data from Asia revealed that China’s factory output and retail sales experienced their slowest growth in over a year during November, adding to the difficulties faced by policymakers as they seek new strategies to maintain momentum in the $19 trillion economy. The Australian dollar, frequently regarded as a liquid proxy for the yuan, decreased by 0.12% to $0.6646, while the onshore yuan appreciated to a level not seen in over a year, reaching 7.0500 per dollar.