Yen remains weak, dollar slips as markets await US CPI data
Updates as of 10:16 a.m. EDT
By Laura Matthews and Harry Robertson
NEW YORK/LONDON, Aug 13 (Reuters) -The yen remained weak for asecond straight dayon Tuesday and the dollar softened against the rest of its peers incalmer trading, as markets await U.S. inflation data that could indicate the outlook for Federal Reserve interest rate cuts.
The greenback began softening after the release of data showing U.S. producer pricesincreased less than expected in July as a rise in the cost of goods was tempered by cheaper services, indicating that inflation continued to moderate.
"We're seeing little bit of weakness, and part of the issue is we don't have a CPI (report) yet," said Erik Nelson, macro strategist, at Wells Fargo Securities in London. "We did see a little bit of dollar weakness. The core PPI number was actually kind of strong, which may be holding back the dollar weakness as well."
Currency markets have been rocked by a sharp rally in the yen since July that has prompted - and been driven by - an unwinding of a highly popular investment strategy called the carry trade and contributed to a slide in stocks.
Yet the dollar was softeragainst the yen JPY=EBS on Tuesday to 146.98, in a sign that markets appear to be over the worst of the recent turbulence.
The yen slid to 38-year lows in July as investors piled into the carry trade, where they borrow yen in Japan where interest rates are low, then sell it for other currencies to buy higher yielding assets elsewhere.
A number of factors, particularly a surprise rate hike by the Bank of Japan and expectations of U.S. rate cuts due to a slowing labor market, have combined to reverse the carry trade stampede, leaving the yen up around 8% since mid-July.
Government sources told Reuters that Japan's parliament plans to hold a special session on Aug. 23 to discuss the central bank's decision last month to raise rates.
Investors await the moreclosely watched consumer price index report on Wednesday, which will also helpguide the Fed's interest ratepolicy.
The dollar index =USD slipped to102.92, with the euro up EUR=EBS 0.22% at$1.0957.
"All told this is a fair indication that the Fed won't have any roadblocks to cutting interest rates at least 25 bps (basis points) in September," said Helen Given, associate director of trading at Monex USA.
"I still don't believe 50 (bps) is likely, as the Fed has shown itself to be averse to shocking the market, but the potential for any easing rather than continued holds promises some USD weakness especially as other central banks around the world consider holding rates steady during the next meeting cycle."
POUND PERKS UP
Sterling GBP=D3 rose0.42% to$1.2817, withdata earlier in the session showing the UK's jobless rate fell to 4.2% in June from 4.4% in May, defying economists' expectations of a slight rise. Job vacancies declined while wage growth slowed.
Low survey response rates have recently caused investors and economists to put less weight on Britain's labor market data.
In other currencies, the Aussie dollar AUD=D3 rose 0.35% to $0.6608. The dollar was flat against the Swiss franc CHF=EBS, another currency that has rallied recently as investors have unwound carry trades.
Volatility in currency markets hits a one-year high https://reut.rs/4cqLedZ
Reporting by Laura Matthews in New York and Harry Robertson in London; Additional reporting by Wayne Cole in Singapore; Editing by Sam Holmes, Sharon Singleton, Susan Fenton and Paul Simao
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
