Forex Market Updates - Yen Softens, Euro Firms on GDP and Inflation Data
Forex Market Updates - Yen Softens, Euro Firms on GDP and Inflation Data

Forex Market Updates: The yen experienced a softening trend on Monday, extending losses from the end of last week's volatile session, following the Bank of Japan's (BoJ) decision to loosen its grip on interest rates. However, despite these losses, it is still on track to achieve its first monthly gain against the dollar since March.

Meanwhile, in Europe, the euro strengthened after the release of economic growth data, which indicated a slight uptick, while inflation showed a marginal decrease. Looking ahead, the coming week holds significant events, with the Bank of England's meeting scheduled for Thursday, and the release of U.S. payrolls data on Friday. These data points will play a crucial role in shaping the Federal Reserve's interest rate decision for September.

During European trading on Monday, the dollar rose to 142.5 yen, marking its highest point in three weeks, and closed at 142.4, recording a 0.87% increase. On Friday, the Japanese currency experienced a tailspin as traders attempted to analyze the implications of the BoJ's decision to maintain ultra-low rates while adopting a more flexible bond yield curve control (YCC) policy and loosening its defense of a long-term rate cap.

Notably, the dollar managed to recover on Friday's session, gaining 1.2% against the yen after sliding to a session-low of 138.05 yen. The BoJ's policy of keeping yields pinned down has significantly impacted the Japanese currency over the past year, and the fresh intervention on Monday indicates that this trend may persist.

In response to the surge in Japan's benchmark 10-year government bond yield to a nine-year high, the central bank conducted additional purchase operations to slow its rise. This move surprised some market participants and encouraged yen selling overnight, as suggested by MUFG analysts in a note on Monday. However, the yen's inability to sustain gains following the BoJ's policy announcement last week might also reflect the central bank's message that it is not rushing to raise interest rates.

In other Asian news, data released on Monday revealed that China's manufacturing activity declined for the fourth consecutive month in July. Despite this, the China-exposed Australian dollar and Chinese shares received a boost from news of further measures aimed at revitalizing the country's economic recovery. The Aussie closed 0.9% higher at $0.6707, and the offshore yuan remained steady at 7.1531 per dollar, drawing support from an announcement by China's State Council on measures to promote consumption in the automobile, real estate, and services sectors.

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