Aug 16 2024: The U.S. dollar remained close to a two-week high against the yen on Friday, following its largest one-day gain against major currencies in four weeks. This rally was fueled by robust U.S. economic data, which largely dispelled concerns about a potential recession.
The greenback received an additional boost against the Japanese yen on Thursday, thanks to a sharp increase in Treasury yields, as traders scaled back expectations of aggressive easing by the Federal Reserve next month.
Risk-sensitive currencies, such as the British pound, also firmed up as the improved economic outlook spurred a rally in equity markets.
The dollar index, which tracks the greenback against six major currencies, including the yen, pound, and euro, slipped 0.12% to 102.92 as of 0513 GMT. However, this followed a 0.41% surge overnight, marking its biggest gain since July 18.
The dollar eased 0.24% to 148.935 yen, still hovering near Thursday’s peak of 149.40, a level not seen since August 2. The 10-year Treasury yield dipped slightly by over 2 basis points to 3.9035% during Asian trading hours.
On Thursday, the Commerce Department reported a 1.0% rise in retail sales for the previous month, surpassing the 0.3% gain forecast. Additionally, only 227,000 Americans filed for unemployment benefits last week, fewer than the 235,000 expected.
While traders remain confident that the Federal Reserve will cut rates on September 18, the debate has centered on the size of the reduction. According to the CME Group’s FedWatch Tool, the odds of a 50 basis-point cut have decreased to 25% from 36% the previous day, following unexpectedly weak payroll data at the start of the month that had pushed the odds up to 71%.
“Growth is in a better position, and the consensus is now leaning toward the ‘soft landing’ scenario,” said Chris Weston, head of research at Pepperstone, noting that the 150 yen per dollar level is the next key threshold to monitor.
“While risks remain, the current data flow offers little to disrupt sentiment in the near term,” Weston added.
Earlier this month, the dollar had fallen to as low as 141.675 yen, a first for this year, driven by the Bank of Japan’s unexpected hawkish stance on interest rate hikes and heightened U.S. recession concerns, leading to an aggressive unwinding of yen-financed carry trades.
Stability was restored after influential Bank of Japan deputy governor Shinichi Uchida reassured that the central bank would refrain from hiking rates during market volatility.
Further evidence of renewed investor confidence came on Friday, as official data showed Japanese investors poured the most money into long-term overseas bonds in 12 weeks by August 10. Foreign investors also reversed eight weeks of net selling by purchasing short-term Japanese debt and snapped up approximately $3.5 billion in Japanese shares, following three consecutive weeks of net sales.
Meanwhile, the British pound rose 0.2% to $1.2879, building on its overnight gain of 0.21%, supported by strong GDP figures on Thursday. The euro edged up 0.1% to $1.098225 after a 0.36% decline in the previous session.
The risk-sensitive Australian dollar advanced 0.33% to $0.6632, continuing its 0.2% gain from the previous day, following a larger-than-expected increase in employment figures. New Zealand’s dollar climbed 0.6% to $0.60205.