Yen extends rally to new seven-month high; dollar subdued ahead of CPI
“The Japanese yen climbed to a seven-month high against the U.S. dollar on Tuesday, as traders continued to unwind short positions amid growing bets of a Bank of Japan interest-rate hike while the dol…”
The yen strengthened to as much as 152.89 per dollar in morning trading, surpassing levels reached during Japan's July intervention and hitting its strongest since February. It later pared some gains and was last at 153.32.
That added to the yen's 1.2% jump during a thin session on Monday amid a U.S. holiday, with the Japanese currency now having firmed roughly 4.5% from around 160 yen per dollar early last week.
Traders and analysts said a slew of factors, including bets on a faster pace of Bank of Japan tightening, and the potential for Japanese investors to repatriate their funds, unwinding carry trades and U.S. political pressure are now driving a sea change for the embattled currency and turning away the bears.
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"When the yen started to move stronger, I think it triggered a lot of stop losses... especially when they started to break some of those key levels," said Khoon Goh, head of Asia research at ANZ."The thing about this kind of momentum moves is it can be self-reinforcing, and it really depends on whether there's still a lot of short yen positions that are still to be stopped out," he said, adding the next key level to watch will be 150.
CPI DATA AWAITEDThe dollar index, which measures the greenback against a basket of currencies, was a touch weaker at 98.83 amid yen strength. That left the euro and sterling both largely flat, last at $1.1625 and $1.3535, respectively.
Market focus now shifts to U.S. inflation readings (USCPFY=ECI) this week, the last set of key data releases ahead of the FOMC meeting on September 15 to 16, with traders now pricing a roughly 60% chance of a Federal Reserve rate hike this month following Friday's stronger-than-expected nonfarm payrolls report.
Investors were also watching geopolitical tensions in the Gulf and their implications for inflation after Iran threatened on Monday to retaliate against any new U.S. attacks on its assets, warning that energy infrastructure across the Gulf including U.S. oil and gas interests was vulnerable. Oil prices hovered near a six-week high, with Brent crude futures firmly above $97 a barrel.
The New Zealand dollar was 0.1% stronger at $0.5882, while the Australian dollar was flat at $0.7219. Elsewhere, China's yuan was flat near a 3-1/2-year high at 6.71 per dollar, after data showed the country's exports expanded faster in August.
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