The Japanese yen gained ground against the U.S. dollar on Monday, brushing off weaker-than-expected Japanese GDP data as investors recalibrated their outlook on Federal Reserve policy. The move reflects a broader shift in currency markets, where soft U.S. economic indicators have dampened bets on further interest rate increases this year.
The yen rose 0.2% to 158.965 per dollar, marking a second consecutive day of modest gains. The currency remained within its recent trading range despite data showing Japan’s economy expanded at an annualized 1.1% in the second quarter, falling short of consensus forecasts.
Japanese GDP Data Offers Mixed Signals
Capital Economics analysts described the GDP report as “a mixed bag,” noting that government consumption jumped significantly. This suggests that expansionary fiscal policies under economic security minister Sanae Takaichi are beginning to influence growth, even as the government continues to limit the pass-through from higher energy prices.
The yen’s resilience comes as traders increasingly doubt the Federal Reserve will raise interest rates again this year. A series of disappointing U.S. data releases, including non-farm payrolls and inflation gauges for both consumers and producers, has shifted market sentiment.
Major Currencies Strengthen Against Dollar
The euro climbed 0.1% to $1.1582, approaching a two-month high, while the British pound advanced 0.2% to $1.3556, near its firmest level since May. The Australian dollar rose 0.2% to $0.7096, its strongest since June, and the New Zealand dollar gained 0.3% to $0.5907.
BNY analysts noted that softer U.S. data has reduced rate hike expectations, with less than one full hike now priced for December. They added that the back end of the Treasury curve remains elevated, with some commentators attributing higher yields to credibility concerns.
Fed Rate Hike Probability Declines
Fed funds futures now imply a 69.9% probability that policymakers will hold interest rates steady at their next meeting ending September 16, up from 47.6% a month ago, according to the CME Group’s FedWatch tool. Few clues are expected from the U.S. central bank until the Jackson Hole symposium from August 27 to 29.
The U.S. dollar index, which measures the greenback against a basket of six currencies, slipped 0.1% to 99.519, trading near its lowest levels of the month.
Oil Prices Fluctuate Amid Geopolitical Tensions
Oil prices swung between gains and losses as U.S.-Iran talks to resolve the Middle East conflict remained stalled. Brent crude rose 0.8% to $89.21 a barrel after President Donald Trump warned Americans to prepare for continued high fuel prices, while Iran called on the U.S. to accept defeat. Shipping traffic through the Strait of Hormuz remains severely constrained.
Against the Chinese yuan, the U.S. dollar was flat at 6.7409 in offshore trade ahead of activity data due later on Monday. In cryptocurrencies, bitcoin traded flat at $63,038.73, while ether rose 0.4% to $1,888.96.
