🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Dollar weakens as markets await US consumer price data

Published 08/12/2024, 08:37 PM
Updated 08/13/2024, 03:16 PM
© Reuters. FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo.   REUTERS/Thomas White/Illustration/File Photo
EUR/USD
-
GBP/USD
-
USD/JPY
-
DXY
-

By Laura Matthews

NEW YORK (Reuters) -The dollar softened against the yen on Tuesday and was weaker against a basket of its peers in calmer trading, as markets await U.S. inflation data that could indicate the outlook for Federal Reserve interest-rate cuts.

Dollar/yen weakened after data showed U.S. producer prices increased less than expected in July as a rise in the cost of goods was tempered by cheaper services, indicating that inflation continued to moderate. Treasuries rallied, pushing yields lower after the PPI report.

The more closely watched consumer price index report on Wednesday will also help guide the Fed's interest-rate policy.

"Today's PPI release has definitely been taken as promising news for markets," said Helen Given, associate director of trading at Monex USA. "Traders are treating this as sort of a prelude to tomorrow's CPI, which markets have been bracing for as a possible volatility event after last month's reading showed prices actually went down."

Currency markets have been rocked by a sharp rally in the yen since July that has prompted - and been driven by - an unwinding of a popular investment strategy called the carry trade and contributed to a slide in stocks.

Yet, with the dollar down 0.35% against the yen at 146.71, markets on Tuesday appeared to be over the worst of the recent turbulence.

The yen slid to 38-year lows in July as investors piled into the carry trade, in which they borrow yen in Japan where interest rates are low, then sell it for other currencies to buy higher-yielding assets elsewhere.

A number of factors, particularly a surprise rate hike by the Bank of Japan and expectations of U.S. rate cuts due to a slowing labor market, have combined to reverse the carry trade stampede, leaving the yen up around 8% since mid-July.

Government sources told Reuters on Tuesday that Japan's parliament plans to hold a special session on Aug. 23 to discuss the central bank's decision last month to raise rates.

"The market wants to test what the appetite is for it to go higher. The reality is the rate spread between U.S. and Japan is still going to be very wide," said Amo Sahota, director, Klarity FX.

"The market has been oversold very quickly, but now it's trying to get itself back to neutral. I think it's treading very carefully, dipping their toes back into the water again, and seeing what the current is like."

The dollar index fell 0.5% to 102.56, with the euro up 0.61% at $1.0999.

POUND PERKS UP

Sterling rose 0.81% to $1.2869, with data earlier in the session showing the UK's jobless rate fell to 4.2% in June from 4.4% in May, defying economists' expectations of a slight rise. Job vacancies declined while wage growth slowed.

© Reuters. FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo.   REUTERS/Thomas White/Illustration/File Photo

Low survey response rates have recently caused investors and economists to put less weight on Britain's labor market data.

"Last weekend's panic spiral around the potential for a hard landing looks at this point like it was quite overblown, and markets look to be moving back toward stability," Given said. "Any downside surprise on CPI, as we got this morning on PPI, is likely to have a greater effect on USD and move the buck into further negative territory."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.