Investing.com – The U.S. dollar fell on Thursday, the euro posted modest gains and the Japanese yen hit a multi-month high ahead of the Bank of Japan’s meeting next week.

At 5:25 a.m. ET (9:25 a.m. GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% at 103.950, extending an overnight decline.

Dollar ahead of GDP data

The dollar weakened on Thursday, extending an overnight decline amid growing confidence that interest rates will be cut in September.

Second-quarter data will be released later in the session and is expected to show year-on-year growth of 2.0%.

This would be more than the 1.4% growth recorded in the first quarter, but still much slower than the 4.2% growth recorded in the second half of last year.

The release will also show that inflation slowed significantly in the last quarter, with the GDP price index falling to 2.6% from 3.1%, just ahead of Friday’s data on the price index, the Federal Reserve’s preferred inflation gauge.

The Federal Reserve is scheduled to meet next week. Its primary intention is to keep interest rates unchanged while announcing a rate cut in September.

Morale of German companies is falling again

In Europe, the index rose 0.1% to 1.0847, with the euro gaining slightly even as German business sentiment unexpectedly fell in July. It was the third consecutive decline in Germany’s most vital leading indicator.

The Ifo Institute said the indicator fell to 87.0 in July from 88.6 in June.

“The German economy is stuck in crisis,” said Ifo CEO Clemens Fuest.

Interest rates remained at 3.75% last week, but markets are pricing in the possibility that the ECB will make two more rate cuts this year.

fell 0.2% to 1.2885, down from 1.30 ahead of the Bank of England’s monetary policy meeting next week.

UBS expects the central bank to cut interest rates, which is widely seen as uncertain when it will begin what is likely to be a sluggish but steady path of reduction.

Yen is growing stronger

In Asia, it fell 0.7% to 152.72, with the pair hitting a 2-1/2-month low, as investors withdrew short-term yen positions ahead of the Bank of Japan’s July meeting in response to suspicions of Japanese government interference in the currency market.

It is expected to consider a 10 basis point rate hike, and may also unveil a plan to cut bond purchases by about half in coming years.

“USD/JPY has now corrected by 6% from its peak. This is another successful intervention campaign by the Japanese authorities,” ING analysts wrote in a note.

“We believe the success of the intervention had less to do with the size of the currency sales and more to do with the timing. As in September/October 2022, the Japanese FX intervention was timed to coincide with the Fed’s dovish policy revision. Very clever.”

fell 0.5% to 7.2281, but remained near an eight-month high amid ongoing concerns about a slowdown in the country’s economic recovery. A surprise rate cut by the People’s Bank added pressure on the currency and did little to improve sentiment in China’s economy.