The U.S. dollar rebounded from its previous losses after the weak gross domestic product report last week. Following the lost of the greenback was the peak of the Japanese yen as the Bank of Japan disappointed the analysts on their stimulus program.
During the weekend, the dollar traded close to its lowest level in July as the investors had an unfavorable response on the possibility of a rate hike by September 2017.
In line with this, a director of a currency and rates risk-management company claimed that the GDP was a massive miss, thus, the huge dollar sell off that ensued was not a surprise anymore. He also explained that the immediate risk at the moment was for a bit of further weakness in the U.S. dollar on the moderated monetary tightening view.
However, the U.S dollar recovered earlier today advancing 0.4 percent to 102.42 yen while the dollar index rose 0.1 percent at 95.578.
Last Friday, the Commerce Department reported an annual growth of 1.2 percent of the U.S. gross domestic product from April to June, lower than the expected 2.6 percent increase by the economists.
A currency strategist noted that the U.S. dollar advance was stopped in its tracks by the disappointingly weak Q2 GDP figures. He added that the FOMC statement earlier in the week did not leave the impression that a September hike was likely, and with the poor growth numbers, the odds were downgraded further.
The U.S central bank left the interest rate unchanged from its previous policy meeting as the committee awaited for a more stable economic report after the impact of post-Brexit. The Fed noted the improvement of the labor market in June compared to the weak growth in the previous month.
Further, the central bank signaled for a gradual increase of the federal funds rate as it looks for steady inflation rate and better economic reports. On Friday, the nonfarm payrolls data will be released most of the economists agreed that there could be an increase of 175,000 jobs.
Speaking from a conference in Bali, Federal Reserve Bank of New York President William Dudley said that it’s premature to rule out further monetary policy tightening this year. On the other hand, Dallas Fed President Robert Kaplan mentioned in his interview that the central bank must be more considerate and should not overreact on the weak GDP report in relation to its intention to raise hike soon.
Bank of Japan
The BOJ disappointed the investors after its underwhelming stimulus program announced after its two-day policy meeting last week. The central bank of Japan decided to double its annual exchange-traded fund (ETF) purchases to $59 billion and held the negative deposit rate.
Due to the statement of the bank, the yen found its strength again, adding to the bullish trend of the currency. Adding to this, Prime Minister Shinzo Abe is expected to announce a $28 trillion yen fiscal stimulus package on August 2, Tuesday.
Takuya Kanda, a senior researcher at Gaitame.com Research Institute Ltd, said ‘Dollar-yen is rebounding after being sold off too aggressively, But, if upcoming data strengthens the scenario where a rate increase next month isn’t possible, dollar-yen could break 100 this week.’
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