Dollar falls against yen as investors reassess US rate hike outlook

  • The dollar at its lowest since mid-June against the yen
  • Aussie dollar up
  • The euro also gains as the dollar falls

NEW YORK, Aug 1 (Reuters) – The U.S. dollar was at its lowest level since mid-June against the Japanese yen on Monday as investors gauged the likelihood that the Federal Reserve will not hike interest rates as aggressively that some had expected.

The U.S. dollar index was volatile after data showed U.S. manufacturing activity slowed less than expected in July. Read more But a key report for investors this week will be the US jobs report on Friday.

“It’s the start of a new month, and the focus is on the possibility that the Fed will slow its rate hikes,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

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“The focus is on the labor market at the end of the week, and this should confirm that the improvement in the labor market is moderating,” he said. “But pre-COVID it would still be considered a very robust number.”

The dollar index is up about 10% for the year so far, on investor expectations of aggressive rate hikes from the Fed.

“After a big move, I think we’re really consolidating,” Chandler said.

Last week, the dollar tumbled against the yen and two-year yields in the US Treasury market also fell, after data showed the US economy contracted for a second straight quarter. Read more

The dollar fell to its lowest level against the yen since mid-June, and was down from a peak of nearly 140 yen reached in late 1998 last month. The dollar was last down 1.1% at 131.74.

The dollar index was last at 105.26, down 0.7%.

Broad-based dollar weakness helped the euro, which rose 0.5% to $1.0273.

Currency investors were also watching news of US House Speaker Nancy Pelosi’s planned visit to Taiwan. Pelosi was due to travel to Taiwan on Tuesday, two people briefed on the matter said, according to a Reuters report. China has warned that its military will “never sit idly by” if it visits the self-governing island claimed by Beijing. Read more

The Australian dollar rose 0.6% to $0.7036 ahead of a central bank rate hike on Tuesday.

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Currency rates at 11:44 a.m. (3:44 p.m. GMT)

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Additional reporting by Saikat Chatterjee in London; Editing by Jan Harvey, Jane Merriman and Paul Simao

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