US, Aug 17 : The Japanese yen strengthened modestly against the US dollar on Monday as investors reduced expectations of another Federal Reserve interest rate increase this year, even as fresh data showed Japan’s economy expanded at a slower than expected pace.
The yen rose 0.2% to 159.055 per dollar, putting the currency on course for a second consecutive session of gains. However, it remained within the narrow trading range seen over the previous week.
Japan’s economy grew at an annualised rate of 1.1% in the second quarter, according to government data released Monday. The figure was below economists’ expectations, but the yen remained relatively resilient as investors assessed the broader details of the report.
Analysts at Capital Economics described the GDP figures as mixed. They noted that economic activity maintained a reasonable pace during the quarter, while government measures to limit the impact of higher energy costs continued to support households and businesses.
An increase in government consumption also indicated that the expansionary fiscal policies associated with Prime Minister Takaichi were beginning to influence economic activity, the analysts said.
Dollar Weakens as Fed Expectations Shift
The broader US currency market remained subdued as recent economic indicators pointed to softer activity and inflation pressures.
Data covering US employment and consumer and producer prices have contributed to a decline in expectations for another Federal Reserve rate increase this year. Investors are now looking toward the Jackson Hole economic symposium, scheduled for August 27-29, for fresh signals about the central bank’s monetary policy outlook.
BNY analysts said weaker US economic data had reduced expectations for rate increases, with markets now pricing in less than one full rate hike by December.
Fed funds futures indicated a 66.9% probability that the Federal Reserve will leave interest rates unchanged at its meeting ending September 16, compared with 47.6% a month earlier, according to CME Group’s FedWatch tool.
The US dollar index, which tracks the greenback against six major currencies, declined 0.1% to around 99.519, close to its lowest level of the month.
Major Currencies Show Limited Movement
Other major currencies recorded relatively small moves during Monday’s session.
The euro was little changed at $1.1573, while the British pound gained 0.1% to $1.3546. The Australian dollar was broadly steady at $0.7085, while the New Zealand dollar also remained unchanged at $0.5891.
The limited movement reflected caution among investors ahead of upcoming economic data and further guidance from major central banks.
Oil Markets Remain Volatile
Oil prices fluctuated between gains and losses as uncertainty surrounding the Middle East continued to influence energy markets.
Brent crude slipped 0.1% to $88.48 a barrel. Negotiations between the United States and Iran aimed at resolving the conflict remained stalled, while concerns persisted over shipping through the Strait of Hormuz.
US President Donald Trump warned Americans to prepare for elevated fuel prices because of the conflict, while Iran urged Washington to accept what it described as defeat.
Traffic through the strategically important Strait of Hormuz remained at significantly reduced levels, adding to concerns about potential disruptions to global energy supplies.
Yuan and Cryptocurrencies Little Changed
The US dollar was broadly unchanged at 6.7428 yuan in offshore trading as investors awaited Chinese economic activity data due later Monday.
In the cryptocurrency market, bitcoin declined 0.3% to $62,854.48, while ether also fell 0.3% to $1,874.80.
Markets are expected to remain focused on upcoming US economic indicators and comments from Federal Reserve officials as investors reassess the path of interest rates for the remainder of the year.