THE yen fell against the US dollar on Monday (Aug 12) in calmer currency market trading after volatile moves last week, while investors weighed the odds of a deep Fed rate cut next month ahead of a slew of US economic data.
The respite follows a tumultuous week that began with a massive sell-off across currencies and stock markets, driven by worries over the US economy and the Bank of Japan’s hawkishness.
Last week ended calmer, with Thursday’s stronger-than-expected US jobs data leading markets to pare bets for Federal Reserve interest rate cuts this year.
“If global investor risk sentiment continues to improve in the week ahead, it is likely that market expectations for Fed rate cuts will continue to be scaled back,” currency analysts at MUFG said in a note.
Still, investors are pricing 100 basis points of Fed cuts by year-end, according to the CME Group’s FedWatch tool, and US producer and consumer prices numbers due on Tuesday and Wednesday could shift market perceptions.
“It’s more a case of market squaring up a little bit ahead of the US inflation data,” said Christopher Wong, currency strategist at OCBC Bank in Singapore.
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The US dollar was trading at 147.55 yen, up 0.7 per cent, and was also up nearly 0.5 per cent on the Swiss franc, at 0.8694.
The euro dipped 0.1 per cent to US$1.0923, while the US dollar index was flat at 103.22. Sterling paused at US$1.2761.
A week ago, the euro rose as far as US$1.1009 for the first time since Jan 2.
Markets, in particular Japan’s, were rocked last week by an unwinding of the hugely popular yen carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields.
The violent sell-off in the US dollar-yen pair between Jul 3 and Aug 5, sparked by Japan’s intervention, a Bank of Japan rate rise and then the unwinding of yen-funded carry trades, caused it to fall 20 yen.
Leveraged funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, US Commodity Futures Trading Commission and LSEG data released on Friday showed.
The yen reached its strongest level since Jan 2 at 141.675 per US dollar last Monday. It is still down around 4 per cent versus the US dollar so far this year.
JPMorgan analysts revised their forecast for the yen to 144 per US dollar by the second quarter of next year, and said that implied the yen would consolidate in the coming months.
“Carry trades have erased year-to-date gains; we estimate 65 to 75 per cent of positioning being unwound,” they said in a note on Saturday. REUTERS