Yen jumps as carry trades unwind, risk mood sours

Reuters

Yen jumps as carry trades unwind, risk mood sours

2024 7월 25 일, 오전 3:54 GMT

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Updates prices at 0320 GMT

By Rae Wee

SINGAPORE, July 25 (Reuters) -The yen rose to its strongest level against the dollar in 2-1/2 months on Thursday and scaled multi-month highs against other currencies ahead of next week's Bank of Japan (BOJ) meeting, as yen carry trades unwound and risk appetite soured.

The dollar, euro, sterling and other major currencies slumped more than 1% against the yen by the mid-morning in Asia, which analysts attributed to the abandoning of short yen bets in the run up to the BOJ's July meeting, where a rate hike remains on the cards.

Sources told Reuters that the central bank is likely to debate whether to raise interest rates next week and unveil a plan to roughly halve bond purchases in coming years, signalling its resolve to steadily unwind its massive monetary stimulus.

Against the dollar, the yen surged more than 1% to peak at 152.23, a level not seen since early May.

The euro fell over 1% to 165.03 yen EURJPY=, also its weakest level since May, while sterling slid 1.1% to 196.38 yen GBPJPY=.

"We know that the speculative community had very large short yen positions, and as the unwinding was happening, I think a lot of stops got triggered and a lot of those short yen positions started to get stopped out," said Khoon Goh, head of Asia research at ANZ.

"Markets are also starting to contemplate BOJ action next week as well, so I think that's also contributing to the further unwinding of the yen shorts."

The yen also received some safe haven support as risk sentiment took a hit after Wall Street ended sharply lower amid an ongoing rotation out of technology stocks.

"I think it's just a perfect storm at this point of time. You've got unwind in the tech trade, you've got unwind in the carry yen trade...you've got the Nikkei, as well, unwinding," said Tony Sycamore, a market analyst at IG.

The bout of risk aversion took a toll on the Australian and New Zealand dollars, which were already under pressure from weakening commodity prices.

The Australian dollar AUD=D3 was last 0.43% lower at $0.6553, having hit a 2-1/2-month low earlier in the session.

The kiwi NZD=D3 slipped 0.2% to $0.5918.

Elsewhere, the euro EUR=EBS rose 0.03% to $1.08425, while sterling GBP=D3 fell 0.09% to $1.2895.

Separate PMI surveys out on Wednesday showed growth in euro zone business activity stalled in July, while British business activity picked up the same month.

U.S. business activity also climbed to a 27-month high in July, but firms appeared to have some difficulty sustaining higher prices for their goods and services amid resistance from consumers.

"Altogether, the PMI releases haven't changed our view that the ECB, BoE and Fed will cut interest rates in September," said Ariane Curtis, senior global economist at Capital Economics.

Traders also have their eye on second-quarter U.S. growth figures later on Thursday, though the outcome is unlikely to significantly alter bets for Federal Reserve rate cuts this year, with a September move already fully priced in. FEDWATCH

Against a basket of currencies, the dollar =USD fell more than 0.1% to 104.21, though that was largely on the back of the yen's sharp rise.

In China, the yuan CNY=CFXS was last steady at 7.2589 per dollar.

The Chinese central bank surprised markets for a second time this week by conducting an unscheduled lending operation at steeply lower rates on Thursday, suggesting authorities are trying to provide heavier monetary stimulus to prop up the struggling economy.

The same day, five of the major state-owned banks said they would cut deposit rates, marking the first broad reduction in deposit rates by Chinese banks since December last year.

World FX rates https://tmsnrt.rs/2RBWI5E

Reporting by Rae Wee; Editing by Sam Holmes and Miral Fahmy

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