The yen climbed to a three-week high against the dollar on Monday, as Federal Reserve Chair Jerome Powell’s decisive dovish shift stood in stark contrast to the persistently hawkish stance of Bank of Japan (BOJ) Governor Kazuo Ueda.
The U.S. dollar remained near its lowest point in 13 months against the euro and continued to weaken against the British pound, approaching levels not seen since March 2022. This decline followed comments from Bank of England Governor Andrew Bailey, who stated it was “too early to declare victory” over inflation, signaling a less aggressive approach to interest rate cuts compared to the Fed.
The dollar dropped as much as 0.59% to 143.56 yen early Monday, marking its lowest point since August 5, before recovering slightly to a 0.25% loss. Meanwhile, sterling held steady at $1.3215, after reaching a 17-month high of $1.32295 on Friday.
Despite growing dovish sentiment among Fed officials leading up to the annual Jackson Hole symposium, Powell’s keynote speech on Friday was notably more forceful than his peers, according to Tapas Strickland, head of market economics at National Australia Bank. Powell’s omission of terms like “gradual” in his remarks likely fueled market excitement, Strickland noted.
In Asia, BOJ Governor Ueda, speaking before parliament on Friday, reaffirmed the need to adjust the degree of monetary easing, hinting at a possible further increase in the policy rate. Ueda downplayed the impact of July’s rate hike on market turmoil, which had been criticized for triggering a rapid unwinding of bearish yen positions and a sell-off in Japanese stocks.
Many market observers had expected Ueda to adopt a less hawkish tone in his parliamentary testimony, but he remained firm in his stance.
The dollar index, which measures the greenback against a basket of six major currencies, including the euro, sterling, and yen, lingered at 100.64, just above the 13-month low of 100.60 reached late last week.
The euro was relatively unchanged at $1.1190, close to its Friday peak of $1.1201, a level last seen in July of the previous year. This stability came despite reports suggesting that European Central Bank policymakers are likely to support another rate cut on September 12.
Traders are almost unanimously expecting the Fed to initiate its rate-cutting cycle on September 18, with a 36.5% chance of a larger-than-expected 50-basis point reduction, up from 25% odds just a week earlier, according to the CME Group’s FedWatch Tool.
Elsewhere, the Australian dollar dipped 0.1% to $0.6790, though it remained near Friday’s peak of $0.67985, the highest level since July 11. The Chinese yuan edged up slightly to 7.1130 per dollar in offshore trading, marking its strongest level since August 5.
In the cryptocurrency market, Bitcoin gained 0.9%, reaching $64,271.60.
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