Dollar edges higher,yen falls after BOJ rules out another rate hike, for now

The U.S. dollar edged higher Wednesday, while the Japanese yen slumped after the Bank of Japan attempted to calm troubled waters by signaling no more rate hikes while markets remain volatile.  

At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 103.037, inching further away from Monday’s seven-month low.  Dollar rebounds after hefty losses

The dollar gained a little Wednesday, benefiting in part from weakness in the yen and amid some bets that U.S. economic growth will not deteriorate as drastically as markets have been fearing.

The greenback was hit hard by fears of a U.S. recession after a batch of weak readings on the labor market, which ramped up bets that the Federal Reserve will have to cut rates more than initially expected.

However, traders have adjusted their expectations of Fed cuts as this week has progressed, with markets now pricing in a 70% chance of the Fed cutting rates by 50 bps in September, the CME FedWatch tool showed, compared with an 85% chance a day earlier.

“Market stress is noticeably higher than a week ago,” said analysts at Goldman Sachs, in a note, but “our FSI [Financial Stress Index] suggests that there have been no serious market disruptions to date that would force policymakers to intervene." Euro, sterling in tight ranges

In Europe, EUR/USD fell 0.1% to 1.0918, retreating further from Monday’s seven-month high of 1.1009 as the dollar rose.

GBP/USD rose 0.2% to 1.2708, still not far from the five-week low it hit in the previous session.

Data released earlier Wednesday showed that Britain's economy grew more strongly than previously thought in 2022.

The Office for National Statistics said on Wednesday it now believed that Britain's economy grew by 4.8% in 2022, up from a previous estimate of 4.3%. Yen falls sharply after rate hike chances downplayed

In Asia, USD/JPY rose 2.2% to 147.47, with the yen falling sharply after Bank of Japan officials downplayed expectations of interest rate hikes.

BOJ Deputy Governor Shinichi Uchida said the bank will not hike interest rates when markets were unstable - comments that come after volatile moves in the Japanese currency. 

Still, the yen remained well above 38-year lows hit this year, and is expected to see more support as the Japanese economy improves on higher wage growth. 

USD/CNY rose 0.4% to 7.1862, with the yuan slightly extended losses after mixed trade data. 

China’s trade balance shrank much more than expected in July, undercut by disappointing exports after the European Union imposed steep import tariffs on Chinese electric vehicles earlier in July. 

But Chinese imports blew past expectations, fueling some bets on a recovery in local demand. 

The focus is now on Chinese inflation data due later this week. 

 

Source: Investing.com