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Dollar index slips as yen rally outweighs Fed hike expectations

The US Dollar Index was about 98.9, while USD/JPY fell to a six-and-a-half-month low near 154.40 as yen-funded carry trades unwound.

Reported · Written up by our desk · Major Pairs

The US Dollar Index extended its decline on Monday, trading around 98.9, down 0.3%, as a sharp rally in the Japanese yen outpaced factors that typically support the greenback, including elevated expectations for Federal Reserve rate hikes, FXStreet reported.

USD/JPY dropped to a six-and-a-half-month low near 154.40. FXStreet cited hawkish expectations for the Bank of Japan, capital repatriation, and the unwinding of yen-funded carry trades as key drivers of the yen strength.

Trading conditions were expected to remain subdued because US stock and bond markets were closed for the Labor Day holiday. Looking ahead, FXStreet pointed to the US Treasury’s planned buybacks of longer-dated government securities beginning Wednesday, which could affect bond yields and broader sentiment for the currency.

FXStreet also noted that traders increased bets on a September 15 to 16 Fed meeting rate hike after a strong employment report. It added that CME FedWatch Tool data showed roughly a 58% chance of a hike next week, with US inflation data including the Producer Price Index on Thursday and CPI on Friday seen as a major test of rate expectations.

Latest closeUSD/JPY 158.82 ▼0.9%|Dollar index 99.58 ▼0.1%

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