Dollar/yen steadied last week, after posting gains for three straight weeks. Will the dollar rally resume this week? Investors will be keeping an eye on the BoJ minutes from the July meeting, as well as U.S. GDP for the second quarter.
USD/JPY fundamental movers
The Japanese economy grew 1.3% in the second quarter, on an annualized basis. This was significantly lower than the initial estimate of 1.8%. Manufacturing data for July was a mix. Core Machinery Orders fell 6.6%, compared to a strong gain of 13.9% a month earlier. There was better news from Industrial Production, which rebounded with a gain of 1.3%, after a decline of 3.3% in the previous release.
In the U.S., the Federal Reserve lowered rates by 25 basis points, a move that was widely expected. This resulted in a muted reaction on the currency markets. Fed cuts are often accompanied by a dovish message from policymakers, but this time the Fed sounded more hawkish than expected. Jerome Powell said that the U.S. economic picture was “favorable” and that the rate cut was an insurance policy in case economic conditions worsened. Elsewhere, the Philly Fed Manufacturing Index slowed for a second straight month, falling to 12.0. Still, this beat the estimate of 10.9.
104.65 has held firm since the first week of January. It is the final support line for now.
USD/JPY Daily Chart
USD/JPY Sentiment
I am neutral on USD/JPY
The dollar has flexed some muscle in recent weeks, as investors haven’t shown much appetite for the safe-haven Japanese yen. The U.S. economy remains in solid shape, despite last week’s rate cut. With tensions running high in the Persian Gulf, any breakout of hostilities could dampen risk appetite and boost the Japanese currency.
Kenny Fisher - Senior Writer
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
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