Yen rises toward 100 as US dollar's funk deepens on fading Fed bets

[TOKYO] The yen strengthened toward 100 per US dollar as the greenback fell against all its major developed peers after investors trimmed bets the Federal Reserve will raise interest rates this year.

Japan's currency appreciated toward levels last seen when the UK voted to quit the European Union. A gauge of the dollar dropped for a third day in the absence of signs the Fed is set to further diverge from the Bank of Japan and European Central Bank, which are boosting stimulus to spur flagging growth. South Korea's won and Malaysia's ringgit rose along with the yen on Tuesday.

"The yen could test the 100 mark due to further softening of the dollar," said Ray Attrill, co-head of foreign-exchange strategy at National Australia Bank Ltd in Sydney.

"A sustained break of that level would up the pressure on the BOJ to take steps at its September meet."

The yen rose 1 per cent to 100.25 per US dollar as of 6:49 am in London after appreciating to 100.24, the strongest level since July 8. Japan's currency gained 0.7 per cent to 112.42 per euro. The dollar weakened 0.3 per cent to US$1.1213 per euro.

Traders and analysts pointed to stop-loss orders for the yen's sudden appreciation on Tuesday.

"Liquidity is very thin," said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd in Tokyo.

"The dollar can't get a rest."

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major counterparts, fell 0.3 per cent to 1,170.83. The gauge earlier slipped to 1,170.69, the lowest level since June 24, the day after the UK voted to leave the European Union.

Options show an 93 per cent probability that the yen will strengthen to 100 per US dollar in the coming month, according to calculations by Bloomberg.

"A quick break of 100 could be possible but I think dollar-yen will basically be in a 100-to-105 range in coming months, or at least until the BOJ policy decision on Sept 21," said Tohru Sasaki, head of Japan markets research at JPMorgan Chase & Co in Tokyo.

A worse-than-expected US retail sales report last week revived concern the world's biggest economy is struggling to regain momentum. Bloomberg's economic surprise index, which measures data against economists' estimates, has tumbled to a one-month low.

Futures show 45 per cent odds that US policy makers will increase their benchmark rate by year-end, down from a 49 per cent probability on Thursday, the day before the retail sales report was released.

The won jumped 0.9 per cent to 1,093.73 per US dollar, extending its advance in the past month to 3.6 per cent.

The ringgit strengthened 0.4 per cent to 3.9900 per US dollar.

BLOOMBERG