The yen edged higher against the US dollar on Monday as traders pushed back expectations of a Federal Reserve rate hike this year, even as weaker-than-expected Japanese economic growth limited the currency’s gains.
The yen was 0.2% stronger at 159.055 per US dollar, putting it on course for a second consecutive day of modest gains. It remained, however, within the range it has traded in over the past week.
Japan’s economy expanded at an annualised 1.1% in the second quarter, government data showed, below the 2.0% growth forecast in a Reuters poll. The economy nevertheless recorded its third consecutive quarterly expansion.
Capital Economics analysts described the details of the data as “a mixed bag”.
“GDP expanded at a decent pace in Q2 and with the government still limiting the pass-through from higher energy prices,” the analysts wrote in a research note, adding that a jump in government consumption “suggests that Takaichi’s expansionary fiscal policies are starting to have an impact.”
Despite the weaker Japanese figures, the main focus for currency markets remained on the US interest-rate outlook. Softer US data in recent weeks, including employment and inflation figures, have reduced expectations that the Fed will raise rates again this year.
The latest pricing in Fed funds futures showed a 66.9% probability that policymakers will leave rates unchanged at their meeting ending on Sept 16, up from 47.6% a month earlier.
BNY analysts said, “Softer U.S. data over recent weeks has reduced rate hike expectations, with less than one full hike now priced for December.” They added that “The back end of the Treasury curve remains elevated, with some commentators attributing higher yields to credibility concerns.”
Markets are unlikely to receive further major signals from the Fed until the Jackson Hole symposium, scheduled for Aug 27 to 29.
The US dollar index, which measures the greenback against six major currencies, slipped 0.1% to 99.519, leaving it close to its lowest level of the month.
Elsewhere in major currencies, the euro was little changed at US$1.1573 while the pound gained 0.1% to US$1.3546. The Australian and New Zealand dollars were also broadly flat at US$0.7085 and US$0.5891 respectively.
The dollar was steady at 6.7428 yuan in offshore trading ahead of China’s activity data due later on Monday.
Meanwhile, oil prices moved between gains and losses as markets monitored stalled US-Iran talks and continued disruption to shipping through the Strait of Hormuz.
Brent crude slipped 0.1% to US$88.48 a barrel after US President Donald Trump warned Americans to prepare for continued high fuel prices as the Middle East conflict persists. Iran, meanwhile, called on the US to accept defeat.
In cryptocurrencies, bitcoin fell 0.3% to US$62,854.48 while ether was also down 0.3% at US$1,874.80.
Reuters
