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US Dollar Nears Lows Vs Yen as Fed Rate Hike Bets Fall

Published: 15 Aug at 2 PM Tags: Dollar Exchange Rate, Currency Exchange, Yen Exchange Rate, UK, Exchange Rates, Economy, Inflation,

The US Dollar continued to slump against the Yen on Monday after a Friday plummet, as investors sold off the ‘Greenback’ in favour of the Yen. Nikkei stocks drifted lower after a disappointing Japanese GDP result on Monday, which also weighed slightly on the otherwise bullish Yen. USD/JPY trended in the region of 101.00 at the time of writing.

US Dollar (USD) Weakens on Low Chance of 2016 Fed Rate Hike

Last week’s session was bad news for ‘Greenback’ investors, as the week’s US datasets led to a sharp drop in bets that the Federal Reserve could still hike US interest rates in 2016.

Bets were up on the publication of an optimistic Non-Farm Payroll report in the first week of August. However, this optimism was seemingly reversed last week as other key datasets were hardly met with the same enthusiasm.

US productivity contracted for the third consecutive quarter, and Friday’s key US retail sales report revealed that the United States’ retail sector had stagnated in July.

Markets were expecting retail sales to slow to 0.4%, but the unimpressive 0.0% score dashed hopes of Q3 Gross Domestic Product (GDP) improvements in the US.

As the US Dollar’s performance is often tied to Fed rate hike bets, bets dropping from 55% to 42% in one week caused a ‘Greenback’ selloff with many investors seeking out the Dollar’s biggest rivals instead – like the Yen.

Yen (JPY) Surges on US Dollar Selloff

The strength of the Japanese Yen has become increasingly problematic again over the last few weeks, as market ‘Greenback’ selloffs continue to cause investors to flood into the Japanese currency.

As one of the US Dollar’s biggest rival currencies and a fellow ‘safe-haven’ correlated currency, the Yen is often the first to advance when a USD selloff occurs.

This allowed the Yen to remain relatively sturdy even when Monday’s Japanese growth data came in below expectations. Q2 preliminary Gross Domestic Product (GDP) indicated that Japan’s economy had stagnated at 0.0% from April to July.

While this result disappointed investors, the score was just slightly below the expected growth figure of 0.2%. This, alongside low expectations of Bank of Japan (BoJ) stimulus in the coming months, meant that the Yen did not weaken considerably.

The Financial Times reported;

‘Japanese stocks are treading water, following worse-than-expected GDP data showing Asia’s second biggest economy is still on the brink between growth and recession. …

The Yen strengthened by as much as 0.1 per cent following the announcement to ¥101.26 against the Dollar, before pulling back again. The Japanese currency had ended Friday 0.7 per cent stronger.’

US Dollar to Yen Exchange Rate Forecast: US Inflation Figures Could See USD/JPY Fall Further

The US Dollar may continue to have a difficult time in the coming week, which will be equally frustrating (if not moreso) for Japanese exporters struggling to sell due to the high value of the Yen.

Japanese exporters have been hoping for optimistic US news to allow investors to flock back to the Dollar and take some value away from the Yen.

The ‘Ninja’ exchange rate is currently near levels as low as 100.00, and the Japanese government has previously indicated that it would intervene with currency markets if USD/JPY continues to drop past 100 USD per Yen.

Tuesday’s session sees the publication of US Consumer Price Index (CPI) figures for July, which is another key factor for the Federal Reserve’s rate decisions. If inflation drops as expected, the ‘Greenback’ selloff could continue.

However, with the US Dollar one of the world’s premiere currencies, it is unlikely to drop in value too much and could recover if investors buy it from its cheapest levels.

The biggest hope for a USD/JPY recovery is a hawkish stance from Fed officials or jawboning from the Japanese government or BoJ officials.

Japan’s economic calendar is relatively barren for the rest of the week, besides Thursday’s merchandise trade report.

At the time of writing, the US Dollar to Japanese Yen exchange rate trended in the region of 101.00, while the Japanese Yen to US Dollar exchange rate traded at around 0.0100.