He yen fell on Monday against the global dollar in a quieter session in the currency market after volatile moves last week, as investors weighed the chances of a deep rate cut from the United States Federal Reserve (Fed) next month before a series of US economic data.
The respite follows a tumultuous week that began with a massive sell-off in currencies and stock markets, driven by concerns about the U.S. economy and the hawkish stance of the Bank of Japan.
Last week ended more quietly, with employment data from USA on Thursday, stronger than expected, prompting markets to reduce bets on interest rate cuts by the Federal Reserve this year.
“If global investor risk sentiment continues to improve in the coming week, market expectations for Fed rate cuts are likely to further ease,” MUFG currency analysts said in a note.
Still, investors are pricing in 100 basis points of rate cuts. Fed by the end of the year, according to CME Group’s FedWatch. The tool and U.S. producer and consumer price figures due on Tuesday and Wednesday could change market perceptions.
“It’s more a case of the market tightening a bit ahead of the U.S. inflation data,” said Christopher Wong, a currency strategist at the OCBC Bank in Singapore.
He Japanese Yen fell and the dollar rose 0.4% to 147.26 yen, while the dollar index barely registered any variations and stood at 103.16. The euro rose 0.1% to $1.0928 and the greenback held steady against the Swiss Francat 0.8661. For its part, the pound sterling stopped at $1.2761. A week ago, the euro rose to $1.1009 for the first time since January 2.
Carry trade operations are dismantled
The markets, Japan’s in particular was shaken last week by the end of the very popular yen carry trade, which involves borrowing yen cheaply to invest in other currencies and assets that offer higher returns.
The violent sell-off of the dollar-yen pair between July 3 and August 5, triggered by the intervention of Japanan increase in rates by the Bank of Japan and then the liquidation of yen-financed carry trade operations caused the pair to fall by 20 yen.
Leveraged funds’ position in the Japanese yen narrowed to the smallest net short position since February 2023 in the past week, data from the central bank showed. United States Commodity Futures Trading Commission and LSEG published on Friday.
He yen The dollar reached its highest level since January 2 on Monday, at 141.675 per dollar. So far this year, it is still down around 4% against the dollar.
Analysts of JP Morgan The U.S. revised its forecast for the yen to 144 per dollar for the second quarter of next year, saying that implies the yen will strengthen in the coming months. “Carry trades have erased year-to-date gains; we estimate 65-75 percent of positioning is being unwound,” they said in a note on Saturday.
Source: Ambito
