By Rae Wee and Sruthi Shankar

SINGAPORE (Reuters) – The yen rose sharply on Monday and the euro hit its highest rate this year, while the dollar weakened broadly, with investors bracing for dovish signals from the Federal Reserve meeting minutes and a speech by Chairman Jerome Powell in Jackson Hole.

The minutes of the Federal Reserve’s July meeting, due out on Wednesday, and Powell’s speech on Friday are likely to be the key drivers of currencies in a week that also includes inflation data from Canada and Japan and PMI readings for the United States, the euro zone and Britain.

The dollar weakened about 0.9% against the yen to 146.32, after earlier falling below 146.

Analysts believe that the reason for this decision is the general weakening of the dollar and the possibility of a further reduction in the spread 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 interest rate narrative certainly favors a weaker dollar,” said Colin Asher, senior economist at Mizuho.

“Powell will likely reiterate that rate cuts will come fairly soon, and Ueda will likely say that assuming the baseline holds, we would expect to see interest rate hikes in Japan.”

Asher, however, said the dollar was unlikely to depreciate against the yen in the low term, as he expected the Fed to cut interest rates by 25 basis points (bps) in September, while markets were pricing in a 33bp cut, which would likely pave the way for a stronger dollar.

Against other major currencies, the dollar fell to a seven-month low of 102.15.

The euro rose 0.1% to $1.1036, having hit a yearly high of $1.1051 earlier in the day. Sterling rose to a one-month high of $1.2975 and was last at $1.2968.

Analysts said the direction of the two European currencies depends on the dollar’s trajectory and, in the low term, on Powell’s comments on Friday.

“Markets will be focused on what Powell has to say … and I think that will be a great opportunity for Powell to either support or reject market prices,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:).

“I think he will at least give the green light to a rate cut at the September meeting. If anything, I think he will try to keep it optional because we have a bit more data before the next meeting.”

The Australian and New Zealand dollars hit one-month highs of $0.6694 and $0.6086 respectively as risk sentiment improved amid expectations for a dovish Federal Reserve meeting. [AUD/]

The Swiss franc also strengthened slightly, with the dollar down 0.17% at 0.8648 francs.