U.S. dollar strengthened against major currencies on Monday, while Asian currencies came under pressure and the yen weakened after giving back part of its recent gains that followed intervention in the foreign exchange market.
Investors are looking ahead to U.S. inflation data for fresh signals on the Federal Reserve’s interest rate outlook. U.S. Dollar Index rose 0.18% to 99.72 points, remaining close to its lowest level since June 2.
Weak U.S. employment data released on Friday reduced market expectations for a Federal Reserve rate increase in September. The report showed that the economy unexpectedly lost jobs in July, while employment gains from previous months were sharply revised lower.
Markets are currently pricing in around a 44% probability of a September rate increase, compared with approximately 67% a week earlier.
USD/KRW rose 0.8%, making the South Korean won one of the weakest major Asian currencies in early trading.
Higher oil prices added further pressure on the Korean currency, with Brent crude approaching $84 per barrel amid continued uncertainty surrounding the reopening of the Strait of Hormuz. Concerns over energy supplies therefore remain firmly in focus.
South Korea’s heavy dependence on energy imports makes the won particularly sensitive to rising fuel costs.
Japanese yen also weakened, with USD/JPY rising 0.30% to 158.27 yen per dollar. The currency surrendered a large portion of the gains it had recorded following the recent coordinated intervention by Japan and the United States in the foreign exchange market.
Japan and the United States carried out their first coordinated yen buying intervention since 1998 after the Japanese currency fell to its weakest level in four decades, near 164 yen per dollar.
The intervention pushed the yen higher to around 155 per dollar before the currency weakened again above the 158 level.
Yen has fallen around 0.5% against the dollar since the beginning of the month after gaining 3.2% in July.
The renewed decline highlights the limited impact of foreign exchange intervention while the wide interest rate gap between the United States and Japan remains in place. Japan’s fiscal outlook and geopolitical uncertainty are also continuing to weigh on the currency.
The closure of Japanese markets on Tuesday could increase volatility, as lower liquidity may result in sharper foreign exchange moves.
A summary of the Bank of Japan’s July meeting showed growing support among policymakers for a faster pace of interest rate increases as officials assess risks from rising inflation.
Australian dollar remained under pressure ahead of the Reserve Bank of Australia’s monetary policy decision. AUD/USD fell 0.14% to $0.7058, while NZD/USD declined 0.2% to $0.5884.
Reserve Bank of Australia is widely expected to keep its benchmark interest rate unchanged at 4.35%. Investors will focus on the bank’s guidance for further clues about the outlook for interest rates and inflation.
USD/CNY rose 0.05% to 6.7464 yuan, while USD/SGD advanced 0.13% to 1.2796 Singapore dollars.
USD/INR also gained 0.03% to 95.226 rupees, while USD/THB declined 0.08% to 33.005 baht.
Attention is now turning to the U.S. Consumer Price Index report due on Wednesday, which is expected to provide the next major test for Federal Reserve policy expectations.
Core Consumer Price Index is expected to rise 0.2% month over month in July, while the annual rate is forecast to ease to 2.5% from 2.6% in June.
Producer price data scheduled for Thursday and retail sales figures due on Friday will provide additional indications about the likely direction of Federal Reserve monetary policy.
You can now benefit from LDN company’s services through the LDN Global Markets trading platform.
