THE yen rose sharply on Monday (Aug 19) and the euro touched its highest this year as the US dollar retreated broadly with traders bracing for dovish signals from Federal Reserve meeting minutes and chair Jerome Powell’s speech at Jackson Hole.
The minutes of the Fed’s July meeting, due on Aug 21, and Powell’s speech on Aug 23 are likely to be the main currency drivers in a week that will also see inflation data from Canada and Japan and Purchasing Managers’ Index readings across the US, eurozone and UK.
Against the yen, the dollar was about 0.9 per cent lower at 146.32, after earlier slipping below 146.
Analysts attributed the move to broad dollar weakness, along with the potential for further narrowing of the gap between interest rates in the US and Japan.
Bank of Japan (BOJ) governor Kazuo Ueda is expected to discuss the central bank’s decision last month to raise interest rates when he appears in parliament on Friday,
“The relative rates narrative is certainly supporting a lower dollar,” said Colin Asher, senior economist at Mizuho.
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“Powell will probably be reiterating that rate cuts are coming fairly soon, and most likely Ueda will say that, assuming the base case continues to hold, we would expect to be hiking rates in Japan.”
Asher however said the dollar is unlikely to go much lower against the yen in the short-term as he expects the Fed to cut interest rates by 25 basis points (bps) in September, while markets are pricing in a cut of 33 bps, likely paving the way for a firmer dollar.
Against a basket of other major currencies, the dollar fell to a seven-month low of 102.15.
The euro was 0.1 per cent higher at US$1.1036, having touched its strongest level of the year at US$1.1051 earlier in the day. Sterling rose to a one-month high of US$1.2975 and was last at US$1.2968.
The direction of those two European currencies depends on the trajectory of the dollar, and, in the short term, Powell’s remarks on Friday, analysts said.
“Markets will be laser focused on what Powell has to say… and on that, I think it will be a great opportunity for Powell to either endorse or push back market pricing,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“I think he’ll at least greenlight a rate cut at the September meeting,” she said.
“If anything, I think he’ll try to retain optionality because we do have some more data before the next meeting.”
The Australian and New Zealand dollars struck one-month highs of US$0.6694 and US$0.6086, respectively, as risk sentiment picked up on expectations for a dovish Fed outcome.
The swiss franc was also a touch firmer, with the dollar down 0.17 per cent at 0.8648 francs. REUTERS
