US dollar weakens against yen on Monday

The US dollar fell on Monday, especially against the yen, as investors anticipated a dovish tone in the Federal Reserve’s July meeting minutes and Chair Jerome Powell’s speech at Jackson Hole.

This week, watch for key events like the release of meeting minutes and Powell’s speech. Inflation data from Canada and Japan, along with PMI readings from the US, euro zone, and UK, will also influence currency markets.

The dollar fell more than one per cent against the yen, reaching 146.01, as market participants anticipated a potential policy divergence between the US and Japan.

While the Bank of Japan (BOJ) is expected to maintain its ultra-loose monetary policy, the Fed is seen as increasingly likely to cut interest rates in September.

The dollar’s decline was partly due to the unwinding of yen-funded carry trades, leading to market volatility in early August.

Weaker-than-expected US economic data, especially the July jobs report, fueled recession fears and led to expectations of slower rate cuts by the Fed.

The euro gained ground against the dollar, approaching a seven-month high of $1.10475. Sterling also strengthened, reaching a one-month high of $1.2960.

The Australian and New Zealand dollars advanced as well, supported by improved risk sentiment and expectations for less aggressive monetary tightening in those countries.

Traders are fully pricing in a 25-basis point rate cut from the Fed in September, with a possibility of a larger 50 basis point reduction. The focus will now shift to Powell’s speech at Jackson Hole for further clarity on the central bank’s intentions.

Attribution: Reuters

Subediting: M. S. Salama