Yen edges up as traders push back Fed rate hike bets

The Japanese yen edged up against the U.S. dollar on Monday as traders postponed expectations of a Federal Reserve rate hike this year. The yen was 0.2% stronger at 159.055 yen, marking a second consecutive day of modest gains against the greenback. However, the yen remained firmly within its trading range from the past week, according to data released Monday showing Japanese GDP expanded at an annualised 1.1% in Q2.

Capital Economics analysts noted that while GDP expanded at a decent pace, the government's efforts to limit the impact of higher energy prices were evident. Government consumption, they wrote, suggests that Takaichi's expansionary fiscal policies are starting to have an impact.

Meanwhile, the euro remained flat against the dollar at $1.1573, while the British pound increased by 0.1% to $1.3546. Both the Australian and New Zealand dollars were unchanged at $0.7085 and $0.5891, respectively.

Softer U.S. economic data, including non-farm payrolls and inflation gauges, had previously dampened investor expectations of rate hikes from the Fed this year. Fewer clues from the U.S. central bank were anticipated until the Jackson Hole symposium between August 27 and 29. Recent weaker U.S. data has further reduced expectations of rate hikes, with less than one full hike now priced for December, according to BNY analysts.

The Treasury curve has remained elevated on the back end, with some analysts attributing higher yields to credibility concerns. Fed funds futures now suggest a 66.9% probability that Fed policymakers will maintain interest rates at their next two-day meeting on September 16, compared to a 47.6% chance a month ago, as per the CME Group's FedWatch tool.

The U.S. dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.1% and traded near its lowest levels of the month at 99.519. Oil prices fluctuated between gains and losses, while ongoing U.S.-Iran talks to resolve the Middle East conflict remained stalled. Brent crude edged down 0.1% to $88.48 per barrel, as President Donald Trump warned Americans to prepare for continued high fuel prices due to the war.

Iran, in response, called on the U.S. to accept defeat. Shipping traffic through the Strait of Hormuz continued to be minimal.

Against the Chinese yuan, the U.S. dollar remained flat at 6.7428 yuan in offshore trade before the release of activity data due later on Monday. In the cryptocurrency market, both Bitcoin and Ether experienced a slight decline of 0.3%, trading at $62,854.48 and $1,874.80, respectively.