Yen and euro rise: The yen rose on Monday while the euro hit its highest level of the year as Dollar Traders are positioning for possible dovish signals from the Federal Reserve meeting minutes and Chairman Jerome Powell’s upcoming speech at Jackson Hole. The minutes from the Federal Reserve’s July meeting, scheduled for release on Wednesday, and Powell’s speech on Friday are anticipated to be key factors influencing currency moves this week.
Inflation data from Canada and Japan will also be closely watched, along with Purchasing Managers’ Index reports from the US, Eurozone and UK. Dollar The dollar fell about 1 percent against the yen to 146.20 JPY, briefly dipping below 146. Analysts attribute this drop to the overall weakness of the dollar and the potential for widening policy divergence between the United States and Japan.
Dollar-Yen exchange rate forecast
Bank of Japan (BOJ) Governor Kazuo Ueda is expected to address the central bank’s recent interest rate hike when he speaks in parliament on Friday. Colin Asher, senior economist at Mizuho, noted: “The relative rate narrative is supporting a weakening Dollar“Powell is likely to signal rate cuts going forward, while Ueda is expected to signal further rate hikes in Japan if current conditions persist.” However, Asher also suggested that the dollar/yen exchange rate may not ease significantly in the near term. He anticipates a 25 basis point rate cut by the Fed in September, and markets are pricing in a 33 basis point cut, which could lead to a stronger dollar. The dollar fell to a seven-month low of 102.15 against a basket of major currencies.
The euro strengthens
The euro rose 0.1% to $1.1043, before settling at $1.1051, its highest level of the year. Sterling rose to a one-month high of $1.2975, before settling at $1.2968. The BOJ’s recent policy changes caused turbulence in markets in early August, following a significant sell-off of yen-funded carry trades. This triggered a sharp sell-off in risk assets, leading to a sharp drop in stock markets, including the Nikkei 225. This volatility was exacerbated by weaker-than-expected US economic data, in particular a disappointing July jobs report. Investors became increasingly concerned about a possible US recession and criticised the Federal Reserve for its slow pace of rate tightening.
Fed easing projections
Markets have fully anticipated a 25 basis point rate cut by the Fed in September, with a 29% chance of a 50 basis point cut. Futures markets are projecting more than 96 basis points of easing by year-end. Carol Kong, currency strategist at Commonwealth Bank of Australia, commented: “Markets will be closely watching Powell’s remarks. This is an opportunity for Powell to either affirm or counter market expectations. I expect at least a green light for a rate cut in September, although Powell may look to keep options open with more data to come.” The Australian dollar and New Zealand dollar hit one-month highs of $0.6694 and $0.6086 respectively as risk sentiment improved on expectations of a dovish Fed outcome.(With contributions from Reuters)
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