Dollar closes 2-week decline as outlook for US interest rates, Japanese inflation weighs on markets

(MENAFN) The dollar was on track to end a two-week losing streak on Friday as investors weighed the future of U.S. interest rates. Meanwhile, the yen stabilized after a second straight month of rising Japanese inflation kept alive the prospect of a rate hike. The dollar rebounded in Asian trading hours after a turbulent week in which the yen, euro and pound all posted significant gains against the dollar, driven by heightened expectations of a U.S. rate cut in September.

The yen traded at 157.35 against the dollar after hitting a six-week high of 155.375 on Thursday. The rise followed suspected interventions by Tokyo last week estimated at around 6 trillion yen ($38.14 billion), according to data from the Bank of Japan. Core consumer prices in Japan rose 2.6 percent in June, fueling market speculation that the Bank of Japan could soon raise interest rates. Despite this, the yen has fallen more than 10 percent against the dollar this year due to the large interest rate differential between the U.S. and Japan, and had fallen to a 38-year low earlier this month, which was reportedly the trigger for Tokyo’s intervention efforts.

Krishna Bhimavarapu, an Asia-Pacific economist at State Street Global Advisors, noted that the rise in Japanese inflation raises the likelihood of decisive action from the Bank of Japan. In the U.S., data showed higher-than-expected new jobless claims last week, though there was no significant shift in the labor market.

The dollar index, which tracks the greenback against a basket of major currencies, rose 0.1 percent to 104.24, recovering from a four-month low of 103.64 hit on Wednesday. The index is expected to rise 0.17 percent for the week, breaking a two-week downward trend. The euro was relatively steady at USD1.08880 after falling 0.4 percent in the previous session, as the European Central Bank kept interest rates steady without giving any indication of future action. The euro had hit a four-month high of USD1.0947 on Wednesday, reversing earlier losses amid uncertainties surrounding the French election.

Sterling was trading at 1.2941 per dollar after falling 0.5 percent in the previous session. The decline followed data showing British wage growth had slowed but remained robust enough to cast doubt on the likelihood of a rate cut.

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