What’s going on here?
The US dollar weakened against the yen and other currencies, as disappointing housing data left a mark on market sentiment.
What does this mean?
US single-family homebuilding fell in July, triggered by higher mortgage rates and rising house prices, hinting at a sluggish housing market as the third quarter kicks off. This spurred a 1.04% drop in the dollar against the Japanese yen, landing it at 147.75 yen. However, the yen is still on track for its largest weekly drop since June, as market activity appears ‘corrective’ following a previous rally driven by strong US consumer data. Traders are now taking profits ahead of the weekend. Meanwhile, sterling climbed 0.6% to $1.2931, bolstered by a boost in British retail sales from the men’s Euros soccer championship. The euro also rose 0.36% to $1.1012, touching its highest level since January 3 earlier this week, amidst the soft US housing data.
Why should I care?
For markets: A turn in the tide.
New data showed a drop in US unemployment benefit applications to a one-month low and the most substantial rise in retail sales in 1.5 years, diminishing expectations for a hefty 50 basis points rate cut by the Federal Reserve next month. The odds have now decreased to 25.5%, as per the CME Group’s FedWatch Tool. Investors are now eagerly awaiting Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole.
The bigger picture: Ripples across the globe.
Japanese investors plowed the most money into long-term overseas bonds in 12 weeks as of August 10. At the same time, foreign investors turned net buyers of short-term Japanese debt and scooped up around $3.5 billion in Japanese shares after three weeks of net selling. The Bank of Japan reassured markets it won’t hike rates during volatile periods. This global dynamic was reflected in significant trading activity among major currencies, influenced by US economic data and central bank policies, pushing risk-sensitive currencies higher and triggering a rally in equities.