Yet the dollar gained 0.33% against the yen on Tuesday at 147.71, a second consecutive gain, in a sign that markets seem to be over the worst of the recent turbulence
The yen dropped for a second day on Tuesday as calmer trading conditions prevailed before U.S. inflation data, while the pound gained after figures showed the British unemployment rate unexpectedly fell in June.
Currency markets have been rocked by a sharp rally in the yen since July that has prompted – and been driven by – an unwinding of the carry trade and contributed to a decline in stocks.
Yet the dollar gained 0.33% against the yen on Tuesday at 147.71, a second consecutive gain, in a sign that markets seem to be over the worst of the recent turbulence.
The general feeling is that there is still life in this carry trade, that perhaps the moves against the backdrop of the deterioration in U.S. data have been excessive, and certainly fears of a U.S. recession are overblown, according to Kamal Sharma, senior G10 FX strategist at Bank of America.
The yen slipped to 38-year lows in July as investors piled into the carry trade, where they borrow yen in Japan where interest rates are low, then sell it for other currencies to buy higher yielding assets elsewhere.
A number of factors, specifically a surprise rate hike by the BoJ and expectations of U.S. rate cuts due to a slowing labour market, have combined to reverse the carry trade stampede, leaving the yen up almost 8% since mid-July.
Investors on Tuesday were waiting for U.S. PPI inflation data later in the day, before the more closely watched CPI figure on Wednesday. Both will help guide Fed interest rate policy.
The dollar index was 0.13% higher at 103.21 as investors waited for the numbers, with the euro 0.1% lower at $1.0922.
