- Japanese Yen (JPY) rises further as carry trade unwinds
- Hedge funds have flipped yen short positions
- US Dollar (USD) fall versus its major peers
- The US job provisions data is in focus
The US Dollar Japanese Yen (USD/JPY) exchange rate is falling for a third straight day. The pair fell 0.68% in the previous session, settling on Monday at 146.57. At 21:00 UTC, USD/JPY trades -0.92% at 145.22 and is in a range of 145.20 to 147.35.
The Japanese yen strengthened again on Tuesday, extending gains from the previous session as the carry trade continues to unwind.
Rising Fed rate cut expectations alongside a more hawkish Bank of Japan has seen the end of the carry trade and the yen strengthen sharply from a 38-year low reached in July.
As noted by Reuters, by one measure, the Japanese yen-funded carry trade had been completely unwound.
According to the latest Commodity Futures Trading Commission data, hedge funds and speculators have flipped longstanding show-in positions and are now net long the currency for the first time since March 2021.
The US Dollar is falling across the board. The US Dollar Index, which measures the greenback versus a basket of major currencies, trades at 101.37 at the time of writing, down 0.49%, after losses in the previous day.
The U.S. dollar slumped to its lowest level since January on Tuesday as the market awaits tomorrow’s provisions for US payroll data and the Federal Reserve minutes for the August meeting.
Expectations are that 600,00 to 1 million fewer jobs will be created from April 2023 to March 2024 than previously expected. A downward revision of around a million jobs would mean 1.6 million jobs were created in that period, down from 2.6 million initially reported.
A weaker labor market sparked recession fears at the beginning of the month, which is why some traders still believe there is a potential for a 50 basis point rate cut in September. Should the data show the labour market is weaker than initially expected, it could raise expectations of an oversized Fed rate cut.
In addition to jobs data and the minutes from the August FOMC meeting, traders will also focus on Powell’s comments at Friday’s Jackson Hole economic symposium for further clues on the likelihood of the next rate count and any clues about its potential size.
