Dollar wallows near six-week low to yen on view Fed to slow hikes

Dollar wallows near six-week low to yen on view Fed to slow hikes

The dollar traded at ¥134.39, bouncing 0.13 per cent after an overnight plunge of 1.74 per cent, the most since March 2020. ― Reuters pic

Friday, 29 Jul 2022 9:28 AM MYT

TOKYO, July 29 ― The dollar languished near a six-week low to the yen amid a sharp retreat in Treasury yields after investors interpreted a shrinking US economy as one more reason for the Federal Reserve to ease its foot off the tightening pedal.

US second-quarter gross domestic product (GDP) contracted at a 0.9 per cent annualised rate, according to the Commerce Department’s advance estimate, released yesterday. That followed a first-quarter contraction of 1.6 per cent.

Money markets currently give 76 per cent odds that the Fed will slow the pace of rate hikes to half a point at the next meeting in September, against a 14 per cent probability for a third consecutive 75 basis-point increase.

The dollar traded at ¥134.39, bouncing 0.13 per cent after an overnight plunge of 1.74 per cent, the most since March 2020. It touched a low of 134.2 yesterday, the weakest since June 17.

Long-term Treasury yields held around 2.67 per cent today in Tokyo, following a three-day decline.

The dollar index, which measures the currency against six top counterparts, edged 0.03 per cent higher to 106.25, after dipping to a more than three-week low of 106.05 yesterday, when it notched a 0.28 per cent decline.

“Lower yields and positive risk sentiment is (a) tried and trusted recipe for a softer USD,” although that weakness has been “flattered” by an outsized rally in the yen, Ray Attrill, the head of FX strategy at National Australia Bank in Sydney, wrote in a client note.

He warned, like many analysts have this week, that the market’s “conclusion that the Fed has lost some of its hawkishness (is) debatable.”

The GDP data came a day after the Fed raised rates by an as-expected 75 basis points and committed to not flinch in its battle against the most intense US inflation since the 1980s, even if that means a “sustained period” of economic weakness and a slowing jobs market.

Fed Chair Jerome Powell said on Wednesday he did not think the United States was in a recession, based on the strength of the jobs market.

Two consecutive contractionary quarters are widely viewed by economists as signalling a technical recession. In the US, though, the National Bureau of Economic Research is the arbiter of recessions, which it defines as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”

Meanwhile, the euro was flat at US$1.01945 (RM4.53) after a see-saw session yesterday that ultimately ended with it little changed.

Europe is facing its own recession risks amid an ongoing energy crisis. The International Monetary Fund has warned that if Russia, which reduced gas delivery to Europe this week, completely cuts off supplies by year-end, the region could face zero economic growth next year.

Sterling was off 0.09 per cent at US$1.21725, easing back from its Thursday high of US$1.21915, the strongest since June 29.

Aussie slipped 0.09 per cent to US$0.69985, pulling away from the highest since June 17 at US$0.70135, reached yesterday.

Bitcoin was about flat around US$23,851, following a two-day rally. A push above US$24,280.30 would take it to the highest since June 13. ― Reuters