In the currency markets, the Japanese yen fell for the second consecutive day against the dollar, which gained 0.33% to trade at 147.71 yen. This comes as market volatility subsides ahead of the U.S. inflation data. The yen’s decline follows a significant rally in July, driven by an unwinding of the carry trade, where investors borrowed yen at low rates to invest in higher-yielding assets abroad. However, recent U.S. data and a surprise rate hike by the Bank of Japan have reversed this trend, causing the yen to rise by around 8% since mid-July.
Sterling Gains on Unexpected Job Data
The British pound strengthened by 0.27% to $1.28 after data revealed a drop in the UK unemployment rate to 4.2% in June, defying expectations of an increase. Despite declining job vacancies and slowing wage growth, the labor market data was enough to keep the Bank of England cautious on any potential rate cuts.
Market Forecast
Given the recent PPI data and the anticipation surrounding the upcoming CPI report, the U.S. Dollar is likely to remain under pressure in the short term. The DXY could see further declines if the CPI data reinforces the narrative of weakening inflation, increasing the likelihood of a Fed rate cut in September. Conversely, any stronger-than-expected inflation figures could offer temporary support for the dollar, but broader market sentiment suggests a bearish outlook for the currency in the near term.
