By Vidya Ranganathan and Alun John

SINGAPORE/LONDON (Reuters) -International currencies steadied on Monday as looming central financial institution selections in Japan and Europe and vacillating market expectations for U.S. Federal Reserve price cuts compelled a pause within the greenback’s data-spurred rally this yr.

Japan’s yen was one of many larger movers, heading away from Friday’s 148.80 per greenback, its weakest in a month, to as agency as 147.74, because the Financial institution of Japan began its two-day coverage assembly.

Wagers for an exit from adverse charges at this assembly have been wound down following the New Yr’s Day earthquake on Japan’s west coast, alongside dovish BOJ commentary.

The forex, which is delicate to the distinction in rates of interest between the U.S and Japan has been the worst hit in opposition to the greenback this yr, tumbling about 5% in a swift reversal of December’s bounce to five-month peaks close to 140.

“The coverage convergence story drove down dollar-yen in direction of the tip of final yr, and after New Yr we have seen some reversal of that as a result of the market’s expectations for Fed price cuts have been pushed again somewhat bit and expectations for a BOJ price hike have additionally been pushed again,” mentioned BofA chief Japan FX/charges strategist Shusuke Yamada.

“Now we have BOJ tomorrow, and I feel the market desires to see the result earlier than doing something (additional),” he mentioned including he didn’t count on “something main from the BOJ tomorrow”.

Merchants mentioned one issue driving the yen strikes was the expiry of a considerable amount of forex choices this week and the hedging round these contracts.

LSEG information confirmed that whereas most choices expiring between Monday and Thursday with strike costs between 147.15 and 148.10 dollar-yen ranges have been small, the cumulative quantity was round $2.6 billion.

The euro was down 0.1% at $1.0888 and the pound was up a fraction at $1.27095. That left the greenback’s trade-weighted index at 103.24, flat on the day.

The greenback has gained essentially the most amongst developed market currencies in January, and the has risen about 1.8% from the beginning of this yr, although its rally has been jerky as buyers attempt to make up their minds about when the Federal Reserve will begin reducing charges.

Knowledge late final week exhibiting U.S. financial exercise stays resilient regardless of rates of interest at their highest degree in many years induced markets to cut back expectations of price cuts starting as quickly as in March.

Rate of interest futures present merchants are betting price cuts will begin in Might, not March as they did till final week. Longer Treasury yields have risen steadily, with 10-year yields up 30 foundation factors this month.

There’s, nevertheless, a large hole of about 100 foundation factors between market expectations and the Fed’s personal dot plot of the place charges can be by yr finish.

ECB UP NEXT AFTER BOJ

This week additionally has a lot for markets to concentrate on, with the European Central Financial institution and Canada and Turkey’s coverage conferences on Thursday, a busy earnings season and turmoil within the Crimson Sea upsetting international commerce and provide chains.

Forward of the ECB coverage assembly, the talk has shifted considerably as policymakers settle for that the subsequent transfer is a price lower, however later and fewer than what markets count on.

Market analysts suppose the ECB’s inflation and progress outlook is unsuitable nevertheless, and market pricing presently signifies expectations of 5 25 foundation factors cuts this yr.

“The ECB lacks actual hawkish credibility at this stage given the info, and if something dangers stay they shift dovishly – so stay underweight the Euro,” mentioned analysts at NatWest in a be aware.