Calm returns to currency markets as dollar stabilizes, yen retreats from highs
(MENAFN) The dollar stabilized in early trade on Wednesday, easing pressure on the yen, which retreated from its seven-month high. This shift comes as currency markets regain some composure following the turbulence earlier in the week caused by recession fears and the unwinding of interest rate carry trades. Specifically, the yen experienced a 1 percent decline, trading at 146.43 against the dollar, slightly below the seven-month peak of 141.675 reached on Monday. Despite this drop, the yen has appreciated by 3 percent in August, a significant recovery from its 38-year low of 161.96 in early July. This recovery has been fueled by timely interventions from Tokyo in early July and the Bank of Japan's recent shift towards monetary tightening, prompting investors to exit carry trades, which involve borrowing yen at low interest rates to invest in higher-yielding dollar assets.
Market volatility was further intensified by a weaker-than-expected U.S. jobs report on Friday and disappointing earnings from major technology companies, leading to a global sell-off in riskier assets as investors grew concerned about a potential recession in the U.S. economy. This broader market turmoil impacted various currencies. The euro remained nearly unchanged on Wednesday at USD1.092675, while the British pound traded at USD1.26985 during Asian trading hours, close to a five-week low observed in the previous session. The dollar index, which tracks the performance of the greenback against six major currencies, dipped to 102.94, remaining above the seven-month low of 102.15 reached on Monday.
In terms of market expectations, the CME Group's FedWatch tool indicated a shift in sentiment regarding Federal Reserve interest rate policies. Market participants now anticipate a 70 percent likelihood of the Federal Reserve cutting interest rates by 50 basis points in September, down from an 85 percent expectation the previous day. This adjustment in expectations reflects ongoing market assessments of economic conditions and monetary policy responses.
Additionally, the Australian dollar saw a modest rise of 0.24 percent to USD0.6534, following the central bank's decision to rule out interest rate cuts for the year, citing a gradual easing of core inflation. Similarly, the New Zealand dollar strengthened by 0.74 percent to USD0.5998, bolstered by strong employment data, indicating resilience in the labor market. These movements highlight the nuanced responses of different currencies to both domestic economic indicators and broader market dynamics.
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