The dollar fell to its lowest level in more than two months on Monday as traders trimmed U.S. rate hike bets against a backdrop of a run of softer economic data, leaving the euro at two-month highs and the battered yen on stronger ground for now. The yen strengthened 0.2% to around 159.04 per dollar, brushing aside weaker-than-expected Japanese economic growth data. It held below four-decade lows hit in late July just before Japanese and U.S. authorities intervened in currency markets to stem its weakness.
The dollar index, which measures the dollar's value against a basket of other major currencies, fell to its lowest since early June . The euro hit a two-month high at around $1.1614, last up 0.3% on the day. The repricing comes as markets prepare for the Federal Reserve's Jackson Hole symposium next week, where investors will look for clues on policymakers' interpretation of the latest economic data. Joint efforts by the U.S. and Japan to stem the slide in yen have also set up a delicate backdrop for currency markets and the focus has shifted to whether the Bank of Japan will raise rates soon.
Intervention changed the path. It didn't eliminate the interest-rate incentive supporting the carry trade," Matthew Tuttle, CEO of Tuttle Capital Management, said. Carry trades refer to the practice of borrowing cheaply in a currency with low interest rates, such as the yen, to chase higher returns elsewhere. Japan's economy grew at a slower-than-expected pace in April to June, due to lackluster household spending and business investment that analysts say mainly reflected one-off factors
Last week's data showing a surprise drop in retail sales and benign inflation have led markets to conclude that the urgency for further hikes has been diminished. Traders expect just a 30.8% chance of a rate increase at the Fed's September meeting, compared with 52.2% a week ago, according to the CME FedWatch tool.
Still, "there were enough quirks in the data to keep the market on guard for a potential rate hike before the end of the year," Thomas Simons, chief U.S. economist at Jefferies, said. Markets may remain sensitive to incoming data, commentary at Jackson Hole and developments in the Middle East. Lack of fresh guidance from the Fed has also left investors manoeuvring an increasingly murky rate environment.
Against the Chinese yuan , the dollar was 0.11% lower at 6.7372 in offshore trade, hovering at its weakest since 2023. China's industrial output growth slowed while retail sales grew less than expected in July, data on Monday showed.
