After data showed that headline consumer prices unexpectedly fell in June, the dollar fell on Thursday. Additionally, the Japanese yen gained more than 2% at one point as traders priced in the possibility that the Federal Reserve will begin cutting interest rates in September.
After falling to a 38-year low against the dollar last week, the yen’s sharp rise fueled speculation that the Bank of Japan might step in to help the currency. However, analysts stated that the move was most likely connected to repositioning due to the fact that numerous traders were caught on the wrong side of the market.
“I’d say probably it’s position squaring as opposed to any authority moves,” said Steve Englander, head of worldwide G10 FX examination and North American full scale methodology at Standard Contracted Bank NY Branch in New York.
Thursday’s information showed the buyer cost file plunged 0.1% last month in the wake of being unaltered in May, and posted a yearly increase of 3%, the littlest in a year.
In June, core prices increased by 0.1 percent, or 3.3% annually. According to Englander, positions betting on further losses in the Japanese yen versus the dollar “have piled up.” This is because of the wide difference in interest rates between Japan and the United States.
However, the present CPI information shows that a September rate cut is “exceptionally likely”, thus “that rate differential story disintegrates,” he said. According to the FedWatch Tool of the CME Group, traders are now pricing in a 91% probability of a rate cut in September, up from 75% on Wednesday. By December, there will probably be another cut.
The dollar index reached its lowest point since June 7 at 104.07, down 0.66 percent. The dollar fell 1.95 percent to 158.49 against the yen, reaching its lowest level since June 17 at 157.4. The euro gained 0.45 percent to $1.088 before reaching its highest level since June 7 at $1.090.
