US dollar ticks up ahead of busy data week; yen under pressure

THE US dollar ticked up slightly on Tuesday (Aug 29) after a strong run, though traders held off from large bets ahead of a slew of economic data this week. The Japanese yen, however, languished near levels that triggered intervention last year.

Against a basket of currencies, the US dollar edged up 0.14 per cent to 104.88, after slipping 0.2 per cent on Monday.

The index is up over 2 per cent this month and is coming off a run of six weeks of gains as resilient US economic data bolstered expectations that rates may stay higher for longer.

That view gained more traction after Federal Reserve chairman Jerome Powell suggested on Friday that further interest rate increases may be needed to cool still-too-high inflation, though his promise to move with care at upcoming meetings provided for some uncertainty.

“The message from Powell was that they are in data dependent mode and that puts more focus on the US numbers this week, particularly PCE deflator and payrolls,” said Lee Hardman, senior currency analyst at MUFG.

Personal consumption expenditure data, the Fed’s favoured inflation gauge, is due Thursday and nonfarm payrolls will come on Friday, though job openings figures for July released later on Tuesday will help set the tone. Economists polled by Reuters expect job openings to come in at 9.465 million, easing slightly from June.

Markets are pricing in a 78 per cent chance of the Fed standing pat on interest rates next month, the CME FedWatch tool showed, but the odds of a hike by the November meeting are now at around 60 per cent compared with 42 per cent a week earlier.

“Meanwhile, in Europe we have the eurozone CPI report Thursday which the market is putting a great deal of weight on with the ECB’s decision in September seen as finely balanced,” Hardman added.

The euro was flat at US$1.081, with Hardman saying the single currency had found support around the US$1.08 level, and sterling was last at US$1.260, steady on the day, moving off two-month lows from last week.

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The widening gap in interest rates between Japan and the United States has pressured the yen, with the country’s low yields making the currency an easy target for short-sellers and appropriate for funding trades.

The Japanese currency was a touch softer at 146.69 per US dollar on Tuesday within a whisker of the 146.75 hit a day earlier, its weakest level since Nov 9. The Asian currency is down about 11 per cent against the US dollar for the year.

Wary traders have been on the look out for any signs of intervention from Japanese authorities.

Japan intervened in currency markets last September when the dollar rose past 145 yen, prompting the Ministry of Finance to buy the yen and push the pair back to around 140 yen.

“If US data, and consequently US yields, continue to be firm, we could see increasing pressure on the yen,” Charu Chanana, market strategist at Saxo, said.

Chanana said the intervention threat has retreated at sub-150 levels, given a lack of currency-related comments from Bank of Japan Governor Kazuo Ueda at the Jackson Hole conference and no signs of verbal intervention yet. REUTERS