By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The yen fell from a 2-1/2-month high against the U.S. dollar on Thursday, as financial markets stabilised and investors looked ahead to a Bank of Japan meeting next week that could see an interest rate hike.
The Japanese unit has surged this week as market participants have retreated from their long-term bets against the currency. At the same time, a pointed decline in global stocks in recent sessions has sent investors into conventional safe-haven assets such as the Swiss franc and the yen.
However, US stock markets recovered losses after a pointed sell-off in the previous session.
The yen is up 2.4% this week, on track for its best weekly gain since behind schedule April. The U.S. dollar was last down slightly at 153.84 yen.
The dollar narrowed losses against the yen and euro after data showed the world’s largest economy grew faster than expected and inflation moderated in the second quarter. That dented growing expectations for a bigger-than-expected rate cut in September or a sudden easing of monetary policy by the Federal Reserve at its meeting next week.
“The Japanese yen is weakening on reduced demand for safe-haven assets, and the speculative fervor that fueled the recent rally appears to be losing steam,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
“We think markets have overdone it a bit, given that fundamentals are not yet supportive of a rapid tightening cycle by the Bank of Japan, and interest rate differentials will remain wide even if the Fed starts cutting in the coming months.”
The interest rate futures market has priced in a 67.2% probability that the Bank of Japan will raise interest rates by 10 basis points (bps) next week, up from around 40% at the start of the week, according to LSEG estimates.
The euro rose slightly against the dollar, reaching $1.0846, remaining at 104.36. The index was at 104.21 just before the release of the economic growth data.
Preliminary estimates showed that U.S. gross domestic product (GDP) grew by 2.8% year-on-year in the last quarter. Economists polled by Reuters had forecast GDP growth of 2.0%.
The PCE price index, excluding volatile food and energy components, rose 2.9% after rising 3.7% in the first quarter.
Against the Swiss franc, the dollar lost 0.5% to 0.8806 francs.
GOING AHEAD OF OURSELVES
“The market got ahead of itself on the Fed rate cuts. Before the GDP data came out, the market was pricing in the Fed cutting rates by 50 basis points in September,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.
He also cited comments by former New York Federal Reserve President Bill Dudley in a Bloomberg column on Wednesday, in which he said the Federal Reserve should cut interest rates next week, citing recent employment data.
“The GDP data shows the Fed is not as urgent,” Chandler said.
The Fed remains on track to cut interest rates in September, according to federal funds futures data. The futures market has also priced in about 68 basis points (bps) of cuts this year, based on LSEG calculations.
US jobless claims data also confirms that the economy is still doing well.
The data showed initial jobless claims fell by 10,000 to a seasonally adjusted 235,000 in the week ending July 20. Economists polled by Reuters had forecast 238,000 claims in the final week.
The only negative, however, was the report on strong goods in the US, which showed that orders for strong goods fell by 6.6% in June due to a decline in orders for transportation equipment, while an boost of 0.3% was expected.
In other currencies, the Australian dollar fell to $0.6519, its lowest level since early May. It was last down 0.6% against the U.S. dollar at $0.6541.
rebounded from the dollar, which fell to its lowest level since early May, 7.205, as the yen’s recovery spilled over into the Chinese unit. The dollar was last down 0.2%, 7.245
Currency
offer
prices in
July 25
07:28
afternoon GMT
RIC Description Last Percent USA YTD Percent Highest Lowest
in Close Change offer Offer
Previous
Session
Dollar 104.31 104.38 -0.05% 2.90% 104.45 104.
index 07
Euro/Dollar 1.0852 1.084 0.12% -1.68% 1.087 USD 1.0
829
Dollar/Ye 153.9 153.86 0.01% 9.09% 154.3 151.
No. 96
Euro/Yen 1.0852 166.79 0.13% 7.31% 167.59 164.
83
Dollar/Swiss 0.8806 0.8852 -0.53% 4.62% 0.8854 0.87
edition 78
British Pound/ 1.2861 1.2906 -0.33% 1.08% 1.2913 $ 1.0
Dollar 829
Dollar/California 1.3808 1.3808 0% 4.16% 1.385 1.37
Nadian 97
Australian/To 0.6549 0.6582 -0.46% -3.92% 0.6582 USD 0.6
511
Euro/Switzerland 0.9554 0.9594 -0.42% 2.89% 0.9598 0.95
chapter 22
Euro/Star 0.8435 0.8397 0.44% -2.69% 0.8439 0.83
linga 95
New Zealand 0.5893 0.593 -0.68% -6.8% 0.593 0.58
Dollar/Up to 73
ll
Dollar/No 11.0151 11.0265 -0.1% 8.68% 11.1381 10.9
road no. 83
Euro/Norway 11.9548 11.953 0.02% 6.49% 12.0856 11.9
there are 317
Dollar/Swedish currency 10.8111 10.7772 0.31% 7.39% 10.8685 10.7
paradise 65
Euro/Sweden 11.7314 11.6822 0.42% 5.45% 11.7786 11.6
in 784
