Yen stronger as traders pare bets on Fed rate hike

The yen experienced a strengthening trend against the U.S. dollar in recent trading sessions, defying weaker-than-anticipated Japanese GDP figures. The currency held firm within a narrow range over the past week, bolstered by traders reducing their expectations of a potential Fed rate hike this year. The yen rose 0.2% to 159.075 yen versus the dollar, marking the second consecutive day of modest gains.

However, it remained within its weekly trading range. Japanese GDP for the second quarter expanded at an annualized rate of 1.1%, with the 10-year government bond yield hitting a three-decade high. Analysts noted a mixed bag of results, with decent GDP growth and limited pass-through from higher energy prices. Takaichi's fiscal policies appeared to be gaining traction, as seen through a rise in government consumption.

Meanwhile, the euro, British pound, Australian dollar, and New Zealand dollar also saw gains, reaching their strongest levels since June. U.S. data, including non-farm payrolls and inflation indicators, had dampened expectations of Fed rate hikes this year, with only a slight increase in hikes priced for December. Treasury yields remained elevated, with some attributing the rise to credibility concerns.

Fed funds futures indicated a 69.9% probability of the Fed maintaining rates at their September meeting, up from 47.6% a month prior. The U.S. dollar index slipped slightly, nearing its lowest level of the month. Oil prices were volatile, and U.S.-Iran negotiations to resolve the Middle East conflict remained stalled. Brent crude held steady at $88.51 a barrel, as President Trump cautioned Americans to brace for persistent high fuel prices due to the ongoing war.

Iran urged the U.S. to concede defeat. Shipping through the Strait of Hormuz was minimal. The U.S. dollar was flat against the Chinese yuan in offshore trade, while bitcoin and ether showed gains in the cryptocurrency market.