By Rae Wee and Sruthi Shankar
SINGAPORE (Reuters) – The yen rose sharply on Monday and the euro hit its highest level this year as the dollar largely retreated, as traders braced for forgiving signals from Federal Reserve meeting minutes and chairman’s speech Jerome Powell in Jackson Hole.
The minutes of the Fed’s July meeting, scheduled for Wednesday, and Powell’s speech on Friday are likely to be the main currency drivers in a week that will also see inflation data from Canada and Japan and the Purchasing Managers’ Index readings in the United States, the euro and the euro will be on display. zone and Great Britain.
Against the yen, the dollar was about 0.9% lower at 146.32, having previously fallen below 146.
Analysts attributed the move to overall dollar weakness, along with the potential for a further narrowing of the gap between US and Japanese interest rates.
Bank of Japan (BOJ) Governor Kazuo Ueda is expected to discuss the central bank’s decision last month to raise interest rates when he appears in parliament on Friday.
“The relative interest rate story certainly supports a lower dollar,” said Colin Asher, senior economist at Mizuho.
“Powell will likely reiterate that rates will be cut soon, and Ueda will most likely say that, assuming the base case holds, we expect rates to be raised in Japan.”
However, Asher said the dollar is unlikely to fall much against the yen in the near term as he expects the Fed to cut rates by 25 basis points (bps) in September, while markets expect a 33 basis point cut prices, which is likely the path to a stronger dollar.
Against a basket of other major currencies, the dollar fell to a seven-month low of 102.15.
The euro was 0.1% higher at $1.1036, after hitting its strongest level of the year at $1.1051 earlier in the day. Sterling rose to a one-month high of $1.2975 and was last at $1.2968.
The direction of these two European currencies depends on the dollar’s trajectory and, in the short term, on Powell’s comments Friday, analysts said.
“Markets will be focused on what Powell has to say… and I think it will be a great opportunity for Powell to underwrite or push back on market prices,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia ( OTC :).
“I think he will at least give the green light for a rate cut at the September meeting. I think he will at least try to keep the optional options because we will have some more data before the next meeting.”
The Australian and New Zealand dollars hit monthly highs of $0.6694 and $0.6086, respectively, as risk sentiment picked up on expectations for a dovish Fed outcome. [AUD/]
The Swiss franc was also slightly firmer, with the dollar falling 0.17% to 0.8648 francs.
