Yen weak, dollar edges up as traders weigh Fed rate hike path

Yen weak, dollar edges up as traders weigh Fed rate hike path

LONDON/SINGAPORE (Reuters) – The yen fell on Monday to near eight-month lows against the dollar with investors saying intervention was in sight, while ahead of the 4 July holiday, the dollar edged up after U.S. economic data last week showed slightly easing inflation and consumer spending.

The yen weakened 0.35% to 144.82, after on Friday touching its lowest level against the greenback since November. It lost 9% against the dollar in the first six months of the year.

Against the euro, the yen flattened at 158.08, just under the 15-year low of 158 it touched last week as investors keep an eye on whether Japanese authorities will intervene in the currency market.

Finance Minister Shunichi Suzuki said on Friday Japan would take appropriate steps in response to excessive yen weakening, in the latest comment from government ministers and officials.

“The yen is on intervention watch, and the next data focus is Japan’s May wage growth due 7 July,” said Paul Mackel, Global Head of FX Research at HSBC.

Japan bought yen in September, its first foray in the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain ultra-loose policy drove the yen as low as 145 per dollar.

It intervened again in October after the yen plunged to a 32-year low of 151.94.

Still, Japanese business sentiment improved in the second quarter as easing supply constraints and the removal of pandemic curbs lifted factory output and consumption, a central bank survey showed, a sign the economy was on course for a steady recovery.

WEEK AHEAD

Investor focus this week will be on the minutes of the U.S. Federal Reserve’s June meeting due on Wednesday.

The central bank decided to leave interest rates unchanged in its June meeting but hinted that borrowing costs may still need to rise by as much as half of a percentage point by the end of the year.

Economic data through last week painted a picture of resilient U.S. economy that eased recession worries.

Data on Friday showed cooler-than-expected inflation in May, while consumer spending abruptly decelerated, providing further evidence that the Fed’s hikes are having their desired effect.

“The U.S. economy is not slowing as forecast,” Citi strategists said in a client note. “Surprisingly strong job growth is keeping labour markets tight while providing the nominal spending power to drive services consumption.”

Markets are pricing in a 84% chance of the Fed hiking rates by 25 basis points in its July meeting, CME FedWatch tool showed.

Investor attention will also be on the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, and monthly payrolls report due later this week that will help gauge the labour market in the United States.

Against a basket of currencies, the dollar rose 0.2% to 103.16. After eking out a near 2% gain in the first half of the year.

FEARS FROM CHINA

Fears of a slowdown in the global economy have weighed on euro, which started the third quarter down 0.2% at $1.0883, after rising for three consecutive quarters.

A private sector survey showed on Monday that China’s factory activity growth slowed in June, with sentiment waning and recruitment cooling as firms grew increasingly concerned about sluggish market conditions.

“Investors have commented that the euro zone cyclical story is losing momentum, and this is why the euro should be lower,” HSBC’s Mackel said adding that the euro is however holding up relatively well.

China’s onshore yuan steadied at 7.2469 after slipping to near eight-month lows against the dollar at the end of last week, supported by the central bank’s intensified efforts to stabilise the much weakened local currency. [CNY/]

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