Dollar muted as markets brace for data fest; yen under pressure

2023-08-29 12:56

By Ankur Banerjee SINGAPORE The U.S. dollar was subdued on Tuesday as traders resisted placing large bets ahead

By Ankur Banerjee

SINGAPORE The U.S. dollar was subdued on Tuesday as traders resisted placing large bets ahead of a slew of economic data this week, while the yen languished near levels that triggered intervention last year.

Against a basket of currencies, the dollar eased 0.058% to 103.87, after slipping 0.2% on Monday.

The index is up 2% this month and is coming off a run of six straight weeks of gains as resilient U.S. 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.

With the U.S. central bank highlighting the rate path will be heavily dependent on data, the spotlight will be on a batch of economic indicators this week, including payrolls and personal consumption expenditure.

Data dependent central banks keep the currency market susceptible to the latest major indicators, strategists from BofA Global Research said in a note.

"Should U.S. growth begin to soften the market will re-focus on sooner rate cuts from the Fed. Conversely, resurgent inflation could pose over-tightening risks globally, introducing greater 'hard landing' risks."

First up is job openings figures for July later in the day. Economists polled by Reuters expect job openings to come in at 9.465 million, easing slightly from June.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said stronger-than-expected job data could boost market pricing for another Fed rate hike and push up the dollar.

Markets are pricing in a 78% chance of the Fed standing pat on interest rates next month, the CME FedWatch tool showed, but the odds of a hike in the November meeting are now at 62% compared with 42% a week earlier.

"Our base case is that the Fed has completed its tightening cycle and will begin its easing cycle in March 2024," CBA's Kong said.

"But Powell's hawkish comments at Jackson Hole suggest the risks are skewed to more tightening and a later start to the easing cycle."

YEN WATCH

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 funding trades.

The yen was little changed at 146.43 per dollar in Asian hours but remained close to 146.75, its lowest level since Nov. 9. The Asian currency is down about 11% against the dollar for the year.

Wary traders have been on the look out for any signs of intervention from the 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 U.S. data, and consequently U.S. 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 the lack of any currency related comments from Bank of Japan Governor Kazuo Ueda at the Jackson Hole conference and no signs of verbal intervention yet.

The euro was up 0.12% to $1.083 ahead of euro zone inflation data later this week. The single currency is up for the second straight day, stepping away from the two month low it hit last week.

Sterling was last at $1.2623, up 0.16% on the day, also moving off two-month lows from last week.

The Australian dollar was up 0.26% at $0.645, while the New Zealand dollar gained 0.19% to $0.592. [AUD/]

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Currency bid prices at 0437 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0830 $1.0819 +0.12% +1.09% +1.0838 +1.0817

Dollar/Yen 146.4200 146.5350 -0.07% +11.58% +146.5000 +146.3500

Euro/Yen 158.58 158.51 +0.04% +13.03% +158.6600 +158.4400

Dollar/Swiss 0.8830 0.8840 -0.12% -4.51% +0.8837 +0.8829

Sterling/Dollar 1.2625 1.2599 +0.21% +4.39% +1.2632 +1.2601