Dollar edges higher,yen falls after BOJ rules out another rate hike, for now By Investing.com

Investing.com – The U.S. dollar rose slightly on Wednesday, while the Japanese yen fell after the Bank of Japan tried to calm troubled waters by signaling it would not raise interest rates again while markets remain volatile.

At 04:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.3% at 103.037, pulling further away from a seven-month low hit on Monday.

Dollar rises after heavy losses

The dollar rose slightly on Wednesday, helped in part by a weaker yen and amid some bets that U.S. economic growth will not deteriorate as sharply as markets had feared.

The dollar was hit hard by fears of a recession in the United States after a series of weak readings on the labor market, which reinforced bets that the US Federal Reserve will be forced to cut interest rates more than initially expected.

However, traders have adjusted their expectations for Fed cuts as the week has progressed, with markets now pricing in a 70% chance of the Fed cutting rates by 50 basis points in September, according to the CME FedWatch tool, compared to an 85% chance the day before.

“Market stress is significantly higher than last week,” Goldman Sachs analysts said in a note, but “our Financial Stress Index suggests that there has not yet been any serious market disruptions that would force policymakers to intervene.”

Euro and pound in tight ranges

In Europe, the pound fell 0.1% to 1.0918, retreating further from Monday’s seven-month high of 1.1009 as the dollar rose.

The pound (dollar) rose 0.2% to 1.2708, but it is still not far from the five-week low it hit in the previous session.

Data released earlier on Wednesday showed that the British economy grew stronger than previously thought in 2022.

The Office for National Statistics said on Wednesday it now believes the UK economy will grow by 4.8% in 2022, up from a previous estimate of 4.3%.

Yen falls sharply after rate hike chances downplayed

In Asia, the Japanese yen rose 2.2% to 147.47, with the yen falling sharply after Bank of Japan officials downplayed expectations of a rate hike.

Bank of Japan Deputy Governor Shinichi Uchida said the bank will not raise interest rates when markets are unstable – comments that come after volatile moves in the Japanese currency.

However, the yen remained well above the 38-year lows it hit this year and is expected to find further support as Japan’s economy improves on higher wage growth.

The Chinese yuan rose 0.4% to 7.1862, with the yuan extending its losses slightly after mixed trade data.

China’s economic activity contracted more than expected in July, as the economy was disappointed after the European Union imposed steep tariffs on Chinese electric car imports earlier in July.

But the Chinese beat expectations, fueling some bets on a recovery in domestic demand.

Attention now focuses on Chinese data due later this week.