Dollar Falls to Six-Week Low Against the Yen

The US dollar declined on Monday, weakening particularly against the Japanese yen, as the market reassessed the Federal Reserve's tightening path.

The Dollar Index, which tracks the greenback against a basket of six other currencies, traded down 0.2% at 105.535 at 03:15 ET (0715 GMT), after falling as low as 105.490, a level not seen since July 5. Data released on Friday presented a mixed inflation picture, with the personal consumption expenditures price index showing the fastest inflation since 2005, while the latest report from the University of Michigan showed consumer inflation expectations falling. However, the very weak release of the US second quarter GDP created the impression that the Federal Reserve has now done most of the tightening, with the economy starting to feel the effects of the sharp rise in interest rates. This week's major economic focus will be on the monthly US employment report due on Friday. While 250,000 jobs are expected to have been created in July, 372,000 jobs were created in the previous month. ING analysts said in a note that investors should expect "interest rate expectations and the dollar's sensitivity to incoming data points to increase" in the coming weeks. "In our view, this means that volatility in dollar crosses will not abate in the near term." USD/JPY fell 0.8% to 132.12, just above the six-week low seen earlier in the session, while the Japanese yen was the biggest beneficiary of the fall in US interest rate expectations. This led to a decline in Treasury yields, narrowing the yield gap between the US and Japan and helping the USD/JPY pair to a 24-year high.