By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The yen rose against the dollar on Friday but looked on track for its biggest weekly decline since June, after a raft of U.S. economic data eased recession fears and lifted bets on a gradual easing of economic monetary policy supported by the Federal Reserve.
The dollar was softer against the yen at 148.73 but hovering close to Thursday’s high of 149.40, a level last seen on August 2.
Risk-sensitive currencies such as sterling remained firm as the improving economic outlook fueled a rally in equities.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits fell to the lowest level in a month last week, and that US retail sales rose by the most in a year and a half in July, raising expectations that the Fed will could lower interest rates, made it waver. next month by as much as 50 basis points (bps).
“We are in the camp that thinks there is a slowdown in growth, that inflation is slowing and that the Fed is going to cut rates, but it is not going to be a panic situation, which already became a story a week or two ago ,” said Salman Ahmed. global head of macro and strategic asset allocation at Fidelity International.
“We remain of the view that we will see two to three cuts, most likely two rather than three, unless the rise in unemployment we saw in the last wages report continues.”
Traders are confident the Fed will cut rates on September 18, but had debated the size of the cut after surprisingly soft US payrolls data lifted the chances of a bigger 50 basis point cut to 71% in early August.
According to CME Group’s (NASDAQ:) FedWatch Tool, the probability of such a move currently stands at 28%, up from 36% a day earlier.
The , which measures the dollar against six major peers, fell 0.2% to 102.84 as of 0830 GMT.
YEN STILL WEAK, POUND A COOL OF LIGHT
The Japanese yen continued to draw attention, with losses of around 1.4% putting the currency on track for its biggest weekly drop in almost two months.
This move was almost as dramatic as the sharp rise to 141.675 yen per dollar on August 5, as the Bank of Japan’s surprise rate hike, combined with the resurgence of US recession concerns, led to an aggressive tapering of the yen-financed carry. transactions.
Some calm returned after the BOJ’s influential deputy governor, Shinichi Uchida, said the central bank would not raise rates when markets are volatile and there are signs traders have been rebuilding their short positions.
“There is a lot of room for (carry trades) to unwind again. Uchida’s (softening) guidance was quite strong. Foreign investors will see this as a dip buying opportunity in the dollar-yen,” said Japan head Shoki Omori. agency strategist at Mizuho Securities, said.
Official data shows strong flows of money, with Japanese investors putting the most money into long-term foreign bonds in 12 weeks in the week to August 10, while foreigners made net purchases of short-term Japanese bonds after eight straight weeks of net selling.
Foreign investors also bought about $3.5 billion in Japanese stocks, reversing three straight weeks of net selling.
Sterling rose 0.2% to $1.2886 – the highest level since July 29 – on positive economic data. The currency was on track for a weekly gain of 1%, its best performance in more than a month.
British retail sales rose slightly in July, partly boosted by extra spending due to the Men’s European Football Championship, official figures showed, after an unusually cool and wet June kept shoppers away.
The euro added 0.1% to $1.0987. The common currency hit its highest level since Jan. 3 earlier this week, helped by the dollar’s decline after soft data.
