Yen rises as traders price in Federal Reserve pause
The US dollar weakened against the yen and a basket of major currencies as soft American economic data prompted investors to slash expectations for a Federal Reserve rate hike this year.
The yen advanced 0.2 per cent against the US dollar to 159.055, securing a second consecutive day of gains. The move occurred despite Japan reporting a weaker-than-expected annualised economic expansion of 1.1 per cent for the second quarter.
"The details were a mixed bag," Capital Economics analysts wrote, noting the government is limiting energy price pass-through. A jump in public consumption suggests "Takaichi’s expansionary fiscal policies are starting to have an impact."
The primary driver for the dollar's retreat is a broad reassessment of US monetary policy. Following soft readings on non-farm payrolls and consumer and producer inflation, the US dollar index fell 0.1 per cent to 99.519.
Futures markets now heavily favour a pause from the US central bank ahead of the Jackson Hole symposium in late August. According to the CME Group's FedWatch tool, there is a 66.9 per cent implied probability that policymakers will hold rates steady at their September 16 meeting.
BNY analysts noted that softer American readings have diminished rate hike expectations, pricing in less than a single full increase by December. They pointed out that long-dated Treasury yields remain elevated due to lingering credibility concerns among market participants.
The shifting rate outlook left the euro flat at $1.1573 and lifted the British pound by 0.1 per cent to $1.3546. The Australian and New Zealand dollars remained unchanged, while bitcoin and ether both slipped 0.3 per cent to $62,854.48 and $1,874.80 respectively.
In commodity markets, Brent crude dipped 0.1 per cent to $88.48 a barrel amid stalled US-Iran negotiations. Shipping traffic through the Strait of Hormuz has slowed to a trickle, prompting Donald Trump to warn Americans to prepare for sustained high fuel prices.
Investors are now looking toward China for further market direction. The US dollar held flat against the offshore Chinese yuan at 6.7428 ahead of upcoming activity data releases.
