Yen hesitant, dollar weak as traders consider the timing of the Fed rate hike

3 Jul 2023 , 12:16 PM

On Monday, the yen held steady just below the psychologically significant threshold of 145 yen to the dollar, while the dollar was under pressure after U.S. economic data from the previous week revealed slightly softening inflation and consumer expenditure. 

Early in the Asian trading day, the yen lost 0.03% to 144.38 per dollar, beginning a 9% down versus the dollar in the first half of the year. The yen was trading around 157.495 against the euro, down from the 15-year low of 158 it reached last week.

It was slightly below the seven-and-a-half-year low of 183.86 it reached on Friday, at 183.47 per pound sterling. On Friday, the Asian currency briefly crossed the 145-dollar threshold, falling to a low of 145.07, which is close to an eight-month low. 

Investors are waiting to see if the Japanese government will intervene in the currency market. In the most recent statement from government ministers and officials, Japan would take necessary action in reaction to an excessive currency depreciation, according to Finance Minister Shunichi Suzuki on Friday. 

Different kinds of verbal intervention make up the lower rungs of the escalation ladder. After the Bank of Japan (BOJ) decided to keep its ultra-loose policy drove the yen as low as 145 per dollar, Japan purchased yen in September, its first venture into the market to support its currency since 1998. 

In October, as the yen fell to a 32-year low of 151.94, it once more entered the picture. Nevertheless, a central bank survey revealed that business optimism improved in the second quarter as supply shortages eased and pandemic restraints were relaxed, increasing industry output and consumer spending. This was an indication that the economy was on track for a sustained recovery. 

The U.S. Federal Reserve’s June meeting minutes, which are expected on Wednesday, will be the centre of investor attention this week.

When the central bank met in June, it decided to leave interest rates constant but gave the impression that they might still need to go up by as much as 0.5 percentage points by year’s end. Consumer spending unexpectedly slowed down in May, according to data released on Friday, adding to the growing body of evidence that the Fed’s rate hikes are having the anticipated impact. 

After increasing by 0.4% in April, the personal consumption expenditures (PCE) price index increased by 0.1% for the month. On an annual basis, it increased 3.8%, slowing from the revised 4.3% in the previous month. The Fed’s 2% inflation target was still much exceeded by the PCE indicators.

According to the CME FedWatch tool, markets are pricing in an 84% chance that the Fed will raise rates by 25 basis points at its meeting in July. Investor focus will also be on the Job Openings and Labour Turnover Survey, or JOLTS, and the monthly payrolls report, both of which are due later this week and will help assess the US labour market. 

The dollar was down 0.4% on Friday and was trading at 102.94 against a basket of currencies. To $1.0906, the euro declined by 0.04%. Last traded at $1.2694, sterling is down 0.08% from the previous day. The New Zealand dollar increased 0.16% to $0.613, while the Australian dollar declined 0.14% to $0.666.

For feedback and suggestions, write to us at [e-mail]