Dollar to end 2 weeks fall as US interest rate outlook, Japanese inflation weigh on markets

(MENAFN) On Friday, the dollar was on track to end a two-week losing streak as investors evaluated the future of U.S. interest rates. Meanwhile, the yen stabilized following a rise in Japanese inflation for the second consecutive month, which kept the prospect of a rate hike alive. The dollar experienced a rebound during Asian trading hours after a turbulent week where the yen, euro, and pound had all made substantial gains against it, driven by heightened expectations of a U.S. interest rate cut in September.

The yen was trading at 157.35 against the dollar after reaching a six-week high of 155.375 on Thursday. This increase followed suspected interventions by Tokyo last week, estimated to be around 6 trillion yen (USD38.14 billion), according to Bank of Japan data. Core consumer prices in Japan rose by 2.6 percent in June, reinforcing market speculation that the Bank of Japan might soon raise interest rates. Despite this, the yen has depreciated over 10 percent against the dollar this year due to the significant interest rate differential between the U.S. and Japan, and it had fallen to a 38-year low earlier this month, which is believed to have prompted Tokyo's intervention efforts.

Krishna Bhimavarapu, an Asia-Pacific economist at State Street Global Advisors, commented that the rise in Japanese inflation increases the likelihood of decisive action from the Bank of Japan. In the U.S., data showed a higher-than-expected number of new unemployment benefit applications last week, although there was no significant shift in the labor market.

The dollar index, which tracks the greenback against a basket of major currencies, rose by 0.1 percent to 104.24, recovering from a four-month low of 103.64 reached on Wednesday. The index is set to gain 0.17 percent for the week, breaking a two-week losing trend. The euro remained relatively stable at USD1.08880 after a 0.4 percent decline in the previous session, as the European Central Bank held interest rates steady without providing indications of future actions. The euro had touched a four-month high of USD1.0947 on Wednesday, reversing previous losses related to uncertainties from the French election.

Sterling was trading at 1.2941 per dollar after a 0.5 percent decline in the prior session. This drop followed data showing that UK wage growth had slowed but remained robust enough to cast doubts on the likelihood of a rate cut. 

MENAFN21072024000045015682ID1108463857