The dollar lost its strength against the yen on Monday, dragged lower by weakening Tokyo stocks and as Japan logs larger-than-anticipated trade surplus.
The U.S. currency slid lower by 0.5 percent at 109.720 yen, retreating from a three-week high of 110.59 reached on Friday.
Monday’s data displayed a much larger trade balance, which was 823.5 billion yen in April compared to the economists’ anticipated value for a 492.8 billion yen increase. This is the third straight month that Japan logged a trade surplus.
If the country’s exports surpass its imports, which is similar to Japan’s current situation, it is assumed that there is a large demand for its goods and its currency.
“The April trade surplus was due in large part to weak imports. Still, the data was enough to trigger yen buying,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
“The trade numbers came out against a political backdrop that does not favor Japan intervening to weaken the yen, thus making it relatively easy for participants to buy back the yen.”
At the meeting of the G-7 finance ministers, which ended Saturday, the United States warned Japan against competitive currency devaluation, showing a well known rift between the two countries on currency intervention.
The conflict over the currency policy dragged the Nikkei down by more than one percent, adding further strength for the Japanese yen.
The dollar retained its strength against other major currencies, with the dollar index staying near a two-month high after markets last week moved to price in a higher possibility of an upcoming U.S. interest rate hike.
The dollar was last at 95.29, still close from its Friday’s 3-week high of 95.51. It increased 0.8 percent last week, ascending for a third straight week.
The euro remains flat at $1.1231, still close to its 2-month low of $1.1180 touched on Thursday.
The positive outlook for the dollar, recent comments from the officials of the Federal Reserve, and the Fed’s meeting in April have influenced several analysts and investors to believe that there is a huge possibility of a U.S. rate hike in June or July.
More Fed officials are scheduled to speak later, including James Bullard, John Williams and Patrick Harker. Last Thursday, William Dudley, the President of the Federal Reserve Bank of New York, said that the economy of the United States could be strong enough to justify a near-term increase in the interest rates.
“Market odds of a June rate hike ended the week at around 30 percent, up from 4 percent a week ago. That is a significant repricing,” analysts at ANZ wrote in a note to clients.
“We continue to see June as very much a ‘live’ meeting.”
The recovering dollar has been largely hit by the commodity currencies, none more so than the Australian dollar, which was further dragged lower by the cuts in its interest rates.
The Australian dollar was last at $0.7230 after being as low as $0.7175 last week, a trough last seen more than 2 months ago.
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