The dollar dropped to its lowest level in more than two months on Monday as traders trimmed bets on a Federal Reserve rate hike. The yen firmed against the dollar and the euro touched a two-month high, while attention now turns to the Fed's Jackson Hole symposium next week.
The dollar index, which tracks the currency against a basket of peers, fell to its lowest level since early June on Monday. The yen strengthened 0.2% to around 159.04 per dollar, brushing aside weaker-than-expected Japanese growth data. The euro, meanwhile, climbed 0.3% to a two-month high near $1.1614.
Yen holds below four-decade lows
The yen held below the four-decade lows it hit in late July, just before Japanese and US authorities intervened in currency markets to stem its weakness. That intervention reshaped the pair's path but did not remove the incentive behind the carry trade, in which investors borrow cheaply in a low-rate currency like the yen to chase returns elsewhere.
According to Reuters: "Intervention changed the path. It didn't eliminate the interest-rate incentive supporting the carry trade," said Matthew Tuttle, CEO of Tuttle Capital Management. Focus has now shifted to whether the Bank of Japan will raise rates soon, since Japan's economy grew at a slower-than-expected pace in Q2, weighed down by lackluster household spending and business investment that analysts largely blame on one-off factors.
Rate hike bets fade
Last week's data showing a surprise drop in retail sales and benign inflation led markets to conclude the urgency for further rate hikes has eased. Traders now price just a 30.8% chance of a rate increase at the Fed's September meeting, down from 52.2% a week earlier, according to the CME FedWatch tool. Still, Thomas Simons, chief US economist at Jefferies, said there were enough quirks in the data to keep the market on guard for a potential hike before year-end, adding that views on Fed policy vary widely heading into Jackson Hole.
Yuan hits weakest level since 2023
Against the Chinese yuan, the dollar was 0.11% lower at 6.7372 in offshore trade, its weakest since 2023. China's industrial output growth slowed while retail sales grew less than expected in July, data released Monday showed.
Source: Economy News
Trading involves risk.
Risk Disclaimer
