Dollar falls sharply as Yen retreats from 7-month high on market concerns
(MENAFN) On Tuesday, the dollar experienced significant losses in early trading, while the yen retreated following a sharp increase in the previous session. The yen fell by 1 percent to 145.78 against the dollar, after having surged over five consecutive sessions to reach a seven-month high of 141.675 on Monday. The yen also weakened against other major currencies, including the Australian dollar, euro, and British pound. This retreat comes as traders face mounting pressure from carry trades and the looming possibility of substantial interest rate cuts by the Federal Reserve.
The recent decline in the yen follows a period of heightened volatility in global markets. Last week's weaker-than-expected U.S. jobs data, combined with disappointing earnings from major technology companies and growing concerns about the Chinese economy, triggered a broad sell-off in stocks, oil, and high-yielding currencies. The prevailing risk aversion among investors has been driven by fears of a potential U.S. recession, which has intensified market unease.
Federal Reserve policymakers have downplayed the notion that the recent soft jobs data indicates a severe economic downturn. However, they have acknowledged the need for potential interest rate cuts to mitigate the risk of further economic deterioration. Current market expectations suggest that the Federal Reserve may implement up to 109 basis points in rate cuts this year, with a 75 percent probability of a 50 basis point reduction in September, according to CME Group's FedWatch tool. Additionally, the yen's earlier rise was partly fueled by the Bank of Japan's recent interest rate hike, which has pressured carry trades—financial strategies where investors borrow in low-interest-rate currencies like the yen or Swiss franc to invest in higher-yielding assets elsewhere.
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