FOREX-Yen on the back foot ahead of ECB meeting, inflation data

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FOREX-Yen on the back foot ahead of ECB meeting, inflation data

HONG KONG Reuters - The Japanese yen was on the back foot on Monday ahead of a busy policy-focused week in which inflation will be in the spotlight with a major European Central Bank meeting and U.S. consumer price data scheduled.

The dollar went to 130.99 yen in early trade, a new one-month high, and not far from last month's 20 year peak of 131.34, after gaining 2.95% last week.

The euro has climbed on the Japanese currency, hitting 140.38 yen on Monday morning, extending a seven-year high hit last week.

Barclays analysts attributed the softer yen to a rebound in risk assets, a rise in overseas yields, a stronger dollar and higher oil prices to concerns about Japan's balance of trade last week.

The dollar index, which measures the dollar against six major peers, was at 102.1 after gaining 0.47% last week after good jobs and manufacturing data.

The European Central Bank is expected to hold a meeting on Thursday, which is expected to prepare the ground for an interest rate hike at its July meeting.

There is some market speculation that the ECB could start with a large 50 basis point rise, after euro zone inflation rose to another record high in May.

Markets are pricing in 125 basis points of hikes at the ECB's four meetings this year.

With the euro area inflation yet to peak, the onus falls on the ECB to push back against the possibility of a 50 bp hike in July, said Barclays. If President Lagarde were to leave all options on the table, market pricing is likely to continue, providing a basis for EURUSD to recover. The euro was stable at $1.0725 on Monday morning, as the sterling was at $1.249.

According to analysts, the Reserve Bank of Australia meets on Tuesday and most analysts expect a 25 basis point rate hike, though some expect a 40 basis point increase.

The Australian dollar gained 0.67% last week, as it was at $0.7204 on Monday.

The consumer price index is due Friday, and is expected to be the main event this week.

A high inflation reading would add to the expectations of a tightening by the U.S. Federal ReserveFederal Reserve, and will likely put an end to speculation that the Fed will take a break from raising interest rates at its September meeting.

Fifty basis-point hikes in June and July are priced in. FEDWATCH continued to wobble around $30,000 and was slightly firmer at $30,300 in early trade.