The yen also advanced to its highest level since mid-May against the euro amid expectations that yield differentials that have made it costly for foreign investors to hold yen securities will narrow
The dollar dropped to its lowest in more than two months against the yen on Wednesday as short-yen carry trades were unwound ahead of next week’s Bank of Japan meeting.
The yen also advanced to its highest level since mid-May against the euro amid expectations that yield differentials that have made it costly for foreign investors to hold yen securities will narrow.
The dollar index dropped 0.12% to 104.35. It pared losses a bit after S&P Global said that its flash U.S. Composite PMI Output Index tracking the manufacturing and services sectors rose to 55.0 this month, the highest since April 2022.
We are just looking at concerns over global growth and we are going to see through the rest of this week if that is going to continue, if the U.S. is going to fare differently, said Helen Given, associate director of trading at Monex USA, in Washington, highlighting China’s surprise rate cuts this week as a catalyst for those concerns.
PMIs for U.S. this morning were fairly positive, but not blowing anything out of the water, she added.
The main macro news of the week comes Thursday, with the first estimate of U.S. second quarter GDP, and Friday, with the PCE Price Index, which the Fed relies on to gauge inflation.
The Federal Reserve holds its meeting the same days. While few expect it to begin reducing rates this month, there is a good chance Fed messaging for a pivot in September will become stronger, given months of declining inflation and slower growth.
Recent rounds of suspected currency intervention have speculators rushing to close what had been profitable carry trades, where they borrowed in low-yielding yen and invested in assets of currencies with higher rates.
The dollar weakened 1.07% to 153.92, reaching its lowest since May 6. The euro marked its lowest price since May 8 and was 1.16% lower at 166.915 yen.
Even if the Bank of Japan delivers something that is not quite as hawkish as the markets are now expecting, there is still the risk that the Ministry of Finance could step in and prevent weakness in the yen if it should occur, according to Brian Daingerfield, FX strategist at NatWest Markets in Stamford.
There is of course the reality that the Fed seems to be closing in on the potential to start an easing cycle of its own here, he added.
The euro dropped 0.11% to $1.0839. Sterling was unchanged in late trade at $1.2905.
Commodity-linked currencies dropped to multi-week lows. Oil prices are at their lowest in a month and a half and industrial metals such as iron ore and copper hit 3-1/2-month lows on a gloomy outlook for Chinese demand.
The Australian dollar declined 0.5% and wrapping up US$0.6584 was near a low reached in early June.
The Canadian dollar softened to 1.3808 per US dollar.
The New Zealand dollar dropped to US$0.5927, trading at levels last seen in early May.
