By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The yen edged lower from a 2-1/2-month high against the U.S. dollar on Thursday, as financial markets stabilized, with investors looking ahead to next week’s Bank of Japan meeting which could see a potential rate hike.

The Japanese unit this week rallied sharply as market participants unwound their long-held bets against the currency. At the same time, a plunge in global stocks in recent sessions had driven investors toward traditionally safe assets such as the Swiss franc and yen.

U.S. equities, however, recovered on Thursday after a steep sell-off in the previous session.

For the week, the yen has risen 2.4%, on track for its best weekly gain since late April. The greenback was last slightly down at 153.84 yen.

The dollar, however, trimmed losses against the yen and euro after data showed the world’s largest economy expanded faster than expected and inflation slowed in the second quarter. That reduced brewing expectations of a larger-than-expected rate cut in September, or a sudden Federal Reserve easing at next week’s meeting.

“The Japanese yen is flatlining on diminished safe-haven demand, and the speculative fervor behind its recent bull run seems to be running out of steam,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“We think markets have gotten a little too far over their skis given that underlying economic fundamentals don’t yet support a rapid tightening cycle from the Bank of Japan, and that rate differentials will remain wide even if the Fed begins cutting in coming months.”

The rate futures market has priced in a 67.2% chance that the BOJ will raise rates next week by 10 basis points (bps), up from about 40% earlier in the week, according to LSEG estimates.

The euro was slightly up against the dollar at $1.0846 , with the flat at 104.36. The index was at 104.21 just before the release of economic growth data.

Advance estimates showed that U.S. gross domestic product (GDP) grew at a 2.8% annualized rate in the last quarter. Economists polled by Reuters had forecast GDP rising at a 2.0% rate.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased at a 2.9% rate after surging at a 3.7% pace in the first quarter.

Against the Swiss franc, the dollar dropped 0.5% to 0.8806 francs.

AHEAD OF ITSELF

“The market got ahead of itself on Fed cuts. Before the GDP number, the market is pricing as if the Fed is going to cut 50 basis points in September,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

He also cited comments from former New York Fed President Bill Dudley in a Bloomberg column on Wednesday, who said the Fed should cut rates next week, citing recent employment data.

“The GDP number shows that the Fed is not under that kind of urgency,” Chandler said.

The Fed remains firmly on track to cut interest rates in September, according to fed funds futures data. The futures market has also priced in about 68 basis points (bps) of cuts this year, based on LSEG calculations.

U.S. jobless claims data were also consistent with an economy still holding up well.

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 235,000 for the week ended July 20, the data showed. Economists polled by Reuters had forecast 238,000 claims for the latest week.

The only blemish, however, was the U.S. durables report, which showed durable goods orders fell 6.6% in June on slumping transportation orders, compared with expectations for a 0.3% rise.

In other currencies, the Australian dollar fell to US$0.6519, its lowest since early May. It was last down 0.6% against the greenback at US$0.6541.

rallied against the dollar, which fell to its lowest since early May at 7.205, as the yen’s rally spilled over to the Chinese unit. The dollar was last down 0.2% at 7.245

Currency              

bid

prices at

25 July​

07:28

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 104.31 104.38 -0.05% 2.90% 104.45 104.

index 07

Euro/Doll 1.0852 1.084 0.12% -1.68% $1.087 $1.0

ar 829

Dollar/Ye 153.9 153.86 0.01% 9.09% 154.3 151.

n 96

Euro/Yen 1.0852​ 166.79 0.13% 7.31% 167.59 164.

83

Dollar/Sw 0.8806 0.8852 -0.53% 4.62% 0.8854 0.87

iss 78

Sterling/ 1.2861 1.2906 -0.33% 1.08% $1.2913 $1.0

Dollar 829​

Dollar/Ca 1.3808 1.3808 0% 4.16% 1.385 1.37

nadian 97

Aussie/Do 0.6549 0.6582 -0.46% -3.92% $0.6582 $0.6

llar 511

Euro/Swis 0.9554 0.9594 -0.42% 2.89% 0.9598 0.95

s 22

Euro/Ster 0.8435 0.8397 0.44% -2.69% 0.8439 0.83

ling 95

NZ 0.5893 0.593 -0.68% -6.8% $0.593 0.58

Dollar/Do 73

llar

Dollar/No 11.0151​ 11.0265 -0.1% 8.68% 11.1381 10.9

rway 83

Euro/Norw 11.9548 11.953 0.02% 6.49% 12.0856 11.9

ay 317

Dollar/Sw 10.8111 10.7772 0.31% 7.39% 10.8685 10.7

eden 65

Euro/Swed 11.7314 11.6822 0.42% 5.45% 11.7786 11.6

en 784

Investing.com – The U.S. dollar slipped lower Thursday, the euro posted small gains while the Japanese yen climbed to multi-month highs ahead of next week’s Bank of Japan meeting.  

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 103.950, extending an overnight decline.

Dollar slips ahead of GDP data

The dollar retreated Thursday, extending an overnight decline amid increasing confidence that the will cut interest rates in September.

data for the second quarter are due later in the session, and is expected to show annualized growth of 2.0%.

This would be above the 1.4% growth seen in the first quarter, but would remain considerably slower than the 4.2% pace seen in the second half of last year.

The release will also show inflation slowed considerably last quarter, with the GDP price index falling to 2.6% from 3.1%, ahead of Friday’s price index data, the Federal Reserve’s favored gauge of inflation.

The Fed is set to meet next week, and is widely to keep interest rates steady while signaling a rate cut in September. 

German business morale falls again

In Europe, rose 0.1% to 1.0847, with the euro edging higher despite German business morale unexpectedly falling in July, the third consecutive decline in Germany’s most prominent leading indicator..

The Ifo institute said its sank to 87.0 in July from 88.6 in June.

“The German economy is stuck in the crisis,” said Ifo president Clemens Fuest.

The kept interest rates on hold at 3.75% last week, but markets are pricing in just short of two more ECB rate cuts for the rest of this year.

traded 0.2% lower at 1.2885, falling back from the 1.30 level ahead of next week’s Bank of England policy-setting meeting.

UBS expects the central bank to trim interest rates in what is widely seen as a close call as to when it will start what is likely to be a slow and steady reduction path.

Yen goes from strength to strength 

In Asia, fell 0.7% to 152.72, with the pair falling to its weakest level in 2-1/2 months as traders abandoned short yen bets in the run up to the BOJ’s July meeting in the wake of suspected currency market intervention by the Japanese government.

The is expected to consider a 10 basis point hike, and could unveil a plan to roughly halve bond purchases in coming years.

“USD/JPY has now corrected 6% off its high. This has proved another successful intervention campaign for Japanese authorities,” said analysts at ING, in a note. 

“We think the success of the intervention has had less to do with the size of the FX sales and more to do with the timing. As was the case in September/October 2022, Japanese FX intervention has been timed to coincide with a dovish reappraisal of Fed policy. Very clever.”

slipped 0.5% lower to 7.2281, but remained near an eight-month high amid persistent concerns over a slowing economic recovery in the country. Surprise rate cuts by the People’s Bank added to pressure on the currency and did little to lift spirits over the Chinese economy.