FOREX-Dollar gains on risk-off mood; BOJ split vote gives yen brief lift

The dollar firmed on Tuesday as risk-off ‌flows ​driven by the Iran war offset a brief rally in the yen following the Bank of Japan's most divided policy decision under Governor Kazuo Ueda. The BOJ kept its policy rate unchanged at 0.75%, but a rare 6–3 split - the widest since Ueda took office - fueled ‌expectations of a possible rate hike as early as June. The yen initially strengthened but reversed course after Ueda's press conference dampened the growth outlook, leaving it little changed at 159.65 per dollar and 186.90 per euro. Three dissenting board members - Junko Nakagawa, Hajime Takata and Naoki Tamura - voted to raise the policy rate to 1.0%, citing sharply rising inflation risks stemming from war-related energy supply disruptions through the Strait ‌of Hormuz. Meanwhile, U.S. President Donald Trump discussed a new Iranian proposal on resolving the war with his top national security aides on Monday. But a U.S. official said later that ‌Trump was unhappy with the proposal because it did not address Iran's nuclear programme.

The euro was down 0.11% at $1.17085. The dollar strengthened 0.51% to 0.79 against the Swiss franc. The U.S. dollar index snapped a two-day losing streak to trade 0.2% higher at 98.66. "We're having the traditional risk-off correlations since the Iran war - a rise in oil prices, a stronger dollar, higher U.S. yields, lower Fed rate cut expectations, and lower gold," said Eugene Epstein, head of structuring for North America ⁠at Moneycorp in ​New Jersey. Brent crude rose 2.8% to settle at $111.26 ⁠per barrel. The benchmark S&P 500 index was down about 0.5%. U.S. Treasury yields were mostly higher, with the yield on benchmark U.S. 10-year notes up 1.7 basis points to 4.354%. Spot gold fell 1.84% to $4,596.50 an ounce. FED TRANSITION IN ⁠FOCUS Attention is also turning to the two-day Federal Open Market Committee meeting that ends on Wednesday. It is widely expected to be Jerome Powell's last as head of the U.S. central bank. Senator Thom Tillis on Sunday ​lifted his hold on the confirmation of former Fed Governor Kevin Warsh as Powell's successor after the U.S. Justice Department ended its criminal investigation into Powell. Warsh is expected to ⁠advocate for rate cuts, though surging energy prices linked to the Iran conflict could make other members of the central bank's policy-setting Federal Open Market Committee cautious. "It's not a meeting where rates policy is on the front burner, but the FOMC assessment ⁠of ​the economy may improve," said Steve Englander, global head of G10 FX research at Standard Chartered in New York. "The inflation picture is improving very slowly at best and could be an emerging issue for Warsh to deal with" when he takes office. Sterling fell 0.12% to $1.352. The Canadian dollar weakened 0.42% to C$1.368 per dollar, ahead of the Bank of Canada's rate decision on Wednesday. ⁠Central banks in the euro zone and UK are also set to deliver decisions this week. Bitcoin fell 1.08% to $76,145.40, while ether was flat at $2,292.25.

"We maintain a bearish USD outlook into this ⁠week's central bank risk events as we look ⁠to the Bank of Canada and Federal Reserve rate decisions on Wednesday, followed by the Bank of England and ECB on Thursday. These meetings follow the BoJ's hawkish hold, where the board delivered a 6-3 vote that was complemented by Governor Ueda's stated intention to maintain a commitment to tightening," ‌Scotiabank analysts led by Shaun Osborne ‌said in an investor note.

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