Yen extends rally to new seven-month high; dollar subdued ahead of CPI
- The dollar index , which measures the greenback against a basket of currencies, was a touch weaker at 98.83 amid yen strength
The Japanese yen hit a seven-month high against the dollar, driven by expectations of a Bank of Japan rate hike and unwinding of short positions, with the dollar subdued ahead of CPI data.
- Factors driving the Japanese yen's significant strengthening against the dollar.
- Anticipated US inflation data and Federal Reserve interest rate hike probabilities.
- Geopolitical tensions in the Gulf and their impact on global oil prices.
HONG KONG: The Japanese yen climbed to fresh seven-month highs against the US dollar on Tuesday, as traders continued to unwind short positions amid growing bets of a Bank of Japan interest-rate hike while the dollar was subdued ahead of CPI data this week.
The yen strengthened to as much as 153.53 per dollar in morning trading, surpassing levels reached during Japan’s July intervention and hitting its strongest since February.
That added to the yen’s 1.2% jump during a thin session on Monday amid a U.S. holiday, with the Japanese currency now having firmed nearly 4% from around 160 yen per dollar early last week.
Traders and analysts said a slew of factors, including bets on a faster pace of Bank of Japan tightening, and the potential for Japanese investors to repatriate their funds, unwinding carry trades and U.S. political pressure are now driving a sea-change for the embattled currency and turning away the bears.
“The drop looked more like a sharp unwind of yen shorts after the pair broke below critical supports” from the around 155 levels seen in August and May, said Tony Sycamore, market analyst at IG, adding that it could open the way for a test of the next layer of support.
CPI data awaited
The dollar index , which measures the greenback against a basket of currencies, was a touch weaker at 98.83 amid yen strength.
That left the euro and sterling both 0.06% stronger, last at $1.1628 and $1.3549, respectively.
Market focus now shifts to U.S. inflation readings this week, the last set of key data releases ahead of the FOMC meeting on September 15 to 16, with traders now pricing a roughly 60% chance of a Federal Reserve rate hike this month following Friday’s stronger-than-expected nonfarm payrolls report.
Investors were also watching geopolitical tensions in the Gulf and their implications for inflation after Iran threatened on Monday to retaliate against any new U.S. attacks on its assets, warning that energy infrastructure across the Gulf including U.S. oil and gas interests was vulnerable.
Oil prices hovered near a six-week high, with Brent crude futures firmly above $97 a barrel.
The New Zealand dollar was 0.1% stronger at $0.5882, while the Australian dollar was flat at $0.7219.
China’s offshore yuan was flat near a 3-1/2-year high at 6.708 per dollar ahead of trade data due later in the day, which is expected to show the country’s exports likely grew at a faster pace in August.
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