The U.S. dollar has recently sunk to a two-month low against the Japanese yen, falling 2.6% to 159.225. The sudden reversal is strongly believed to have been caused by official action by Tokyo to prop up a currency that had been languishing at 40-year lows.
The Japanese government’s Ministry of Finance been sounding the alarm for months about yen intervention, because the weak yen makes it super expensive for Japanese residents to get energy imports, and those imports make up a big chunk of everyday cost of living. This somewhat bold play in the market, comes right before the Bank of Japan announces its interest rate decision. Some economists think the Bank of Japan will still hold its rates around 1% , but the central bank is also watching for more aggressive hikes, due to inflation pressure connected to the ongoing Iran war.
U.S. Economic Drag and Global Central Bank Moves
The dollar’s all-round droop was also further fueled by lagging U.S. economic data. The Personal Consumption Expenditures (PCE) Price Index rose 3.7% in the 12 months ending in June, a decrease from May when it climbed 4.1%, according to the Bureau of Economic Analysis. In addition, U.S. economic growth was down in the second quarter with GDP increasing at a 1.5% annualized rate, well below the 2.1% expected.
The Fed left rates as-is the same day this lagging data rolled in , and honestly it kind of slid through unnoticed. Now traders are starting to measure how likely it is that the Fed keeps rates unchanged in September. Central bank Chair Kevin Warsh repeated his resolve to tame inflation, but markets still weigh whether the central bank moves its next maneuver sooner rather than later early on, while they try to juggle economic growth with steadier prices.
The euro climbed 0.5% to $1.15318, continuing its recovery from the dollar’s slide, in Europe. At the same time, the British pound appreciated 0.8% to $1.34755 following the Bank of England’s decision to keep its interest rates unchanged. The British central bank is closely watching the effects that renewed Middle East hostilities will have on inflation pressures around the world before making future rate adjustments.
