Yen hits seven-month high; dollar soft ahead of US inflation
[SINGAPORE/LONDON] The yen surged to a seven-month high on Monday (Sep 7), as traders appeared to reassess their outlook on the embattled...
The yen reached a seven-month peak on Monday, September 7, as traders appeared to reassess their outlook on the struggling currency, influenced by factors like anticipations of a tighter Bank of Japan policy and Japanese investors potentially shifting funds back home. The key event in the coming week will be the US inflation data released on Friday, which will assist the Federal Reserve in determining whether to raise interest rates later in the month and consequently impact the dollar's direction.
The European Central Bank is set to meet on Thursday, likely to raise eurozone interest rates, but the primary focus remains on the yen until then. The dollar declined as low as 154.05 yen, its lowest since February, and ended down 1 percent for the day at 154.64, surpassing the lows seen in August after Washington and Tokyo jointly intervened in the markets to support the yen, which had previously hit 40-year lows.
Much of the yen's strength from that intervention quickly dissipated, but new factors such as capital repatriation, unwinding carry trades, and US political pressure have now led short speculators to reconsider their long-term strategy. MUFG senior currency analyst Lee Hardman noted that the break above the 155 level suggested traders' bullish views on the currency were reinforced.
Throughout 2023, a break past the 155 level typically marked the dollar/yen bottom point. This recent development signals bullish sentiment and may lead to further gains for the yen. The dollar's decline against the yen also slightly benefited the currency. The euro rose 0.1 percent to US$1.1624, while the pound gained slightly to US$1.3536.
The Federal Reserve's meeting on Friday is crucial, with traders pricing a roughly 57 percent chance that the central bank will raise rates this month following the strong nonfarm payrolls report released on Friday. This data will be instrumental in shaping the Fed's stance on an interest rate hike later in the month. If a September hike is confirmed, it could strengthen the US dollar and potentially prevent it from reaching new cyclical highs.
The dollar's performance will also be influenced by tightening policies of other major central banks, which limit policy divergence.
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