- Unwinding of yen carry trades slow down due to interest rate gap
- Odds of a 0.5% US rate cut diminish
The yen rebounded in Asian trade on Friday against a basket of major rivals, in an attempt to recover from two-week lows against the dollar, however the currency was still heading for the second weekly loss in a row as the unwinding of yen carry trades slowed while US rate prospects changed.
Recent bearish remarks from Bank of Japan officials hurt the odds of a third Japanese rate cut this year, while strong US data hurt the odds of a 0.5% September rate cut by the Federal Reserve.
The Price
The USD/JPY fell 0.4% to 148.74, with a session-high at 149.34.
The yen closed down 1.3% on Thursday against the dollar, marking two-week lows at 149.49 back then after strong US data.
Weekly Trades
The yen is down 1.5% so far this week against the dollar, and about to mark the second weekly loss in a row.
Bearish Remarks
Bank of Japan Deputy Governor Shinichi Uchida said the central bank won’t raise interest rates when the markets are unstable.
He said that given the current turmoil, the BOJ will prefer to maintain current levels of monetary easing unchanged.
Japanese Rates
Naturally, following the remarks, the odds of a BOJ interest rate hike for the third time this year tumbled considerably, which would likely reduce the pressure to unwind carry trades.
US Rates
US retail sales rose past estimates in July in a sign of strong GDP performance in the second quarter of the year.
According to the Fedwatch tool, the odds of a 0.5% September interest rate cut fell from 38% to 22%.
Rate Gap
Investors have sold the yen mercilessly for months due to the massive interest rate gap between Japan and the US.
The rate gap created profitable opportunities, with traders borrowing cheap yen to invest in dollar assets with higher yields, the so-called Carry Trade.
However, after the BOJ and the Fed’s latest decisions in July, the rate gap between Japan and the US shrank to 525 basis points, the smallest such gap since July 2023.
And now investors expect the gap will shrink to 500 basis points by September as the Fed prepares a new rate cut.
US stock indices rose on Thursday after earlier data assuaged concerns about a potential US recession.
Earlier government data showed US retail sales rose 1% in July on a monthly basis, passing estimates of a 0.3% increase.
US unemployment claims fell by 7 thousand to 227 thousand last week, a five-week low.
On trading, Dow Jones rose 1.1% as of 17:02 GMT, or 443 points to 40451 points, while S&P 500 rose 1.4%, or 74 points to 5529, as NASDAQ rallied 2.1%, or 358 points to 17,553.
- Strong US data confuses markets
- Odds of a 0.5% Fed rate cut in September diminish
Bitcoin lost ground on Thursday and moved into negative territory for the second straight day under pressure from the rebounding US treasury yields.
Strong US data sowed confusion in financial markets, as the odds of a 0.5% Fed rate cut in September receded.
Prices
Bitcoin fell 1.7% at Bitstamp today to $57,717, with a session-high at $59,366.
On Wednesday, bitcoin tumbled 3.2% at Bitstamp, marking the first loss in three sessions amid risk aversion.
Crypto Market Value
The market value of cryptocurrencies tumbled by over $40 billion to a total of $2.155 trillion as both bitcoin and ethereum sustained heavy losses.
US Yields
US 10-year treasury yields rose by 2.25% on Thursday, about to mark the first profit in five sessions, and hurting risk appetite in global markets.
The developments came after strong US data, especially retail sales and unemployment claims.
US retail sales rose past estimates in July, in another sign of strong GDP performance in the third quarter of the year, while unemployment claims fell for a second week.
According to the Fedwatch tool, the odds of a 0.5% rate cut by the Federal Reserve in September tumbled from 38% to 22%, while the odds of a 0.25% rate cut rose to 78%.
- Markets await strong clues about US rate cut strategy
- Gold could trade above $2500 for first time ever
Gold prices rose in European trade on Thursday, resuming gains after a two-day hiatus and approaching four-week highs once more as the dollar weakened.
The gains come ahead of important US retail sales data, which could provide clues about the health of the US economy in the third quarter, and fresh pricing for future US rate cuts.
Prices
Gold prices rose 0.45% today to $2458 an ounce, with a session-low at $2446.
On Wednesday, gold lost 0.7%, moving away from four-week highs at $2479.
The Dollar
The dollar index fell 0.1% on Thursday, extending losses for the fifth straight session against a basket of major rivals.
A weaker dollar boosts the greenback-denominated gold futures, and makes them cheaper to holders of other currencies.
US Inflation
Earlier US consumer prices data showed inflation below 3% for the first time since 2021.
The data opened the door for strong Federal Reserve rate cuts this year.
US Rates
According to the Fedwatch tool, the odds of a 0.5% interest rate cut by the Federal Reserve rose from 49% to 65%, while the odds of a 0.25% rate cut stood at 35%.
The SPDR
Gold holdings at the SPDR Gold Trust remained flat yesterday at 845.76 tonnes.
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