US Dollar Starts September Weak as Yen Rally Ripples Through FX Markets

The U.S. dollar fell sharply at the start of September as traders cut bets on a Federal Reserve rate hike this month, while a surging yen sent ripples through global foreign exchange markets. According to Sina Finance, the Bloomberg Dollar Spot Index touched its lowest level since May on Thursday and was on track for a weekly decline of 0.7%. After Fed Governor Christopher Waller said inflation had improved, investors saw the odds of a rate hike at the Fed's September 16 decision as roughly even. The dollar also faced selling pressure amid lingering concerns about the U.S. fiscal outlook. In Japan, the yen was heading for its best weekly performance since July and had risen 2.7% against the dollar. The move was driven mainly by expectations that the Bank of Japan will raise its benchmark rate by 0.25 percentage point this month and open the door to faster tightening afterward. CIBC Capital Markets strategist Noah Buffam said dovish comments from Fed officials this week and the yen's strength had spilled over into the dollar's broader performance. Traders are now focused on Friday's U.S. nonfarm payrolls report, which is expected to show the August unemployment rate unchanged at 4.1%, followed by next week's consumer price index data. According to Sina Finance, U.S. Commodity Futures Trading Commission data showed that as of the week ended August 25, the size of dollar long positions held by hedge funds, asset managers and other traders had fallen to about $27.6 billion. That was well below nearly $50 billion at the end of July, when bullish positioning reached its highest level since 2014. Wall Street strategists are also preparing for further dollar weakness. Bank of America recommended shorting the dollar against the yen and forecast the yen at 149 by year-end, while TD Securities kept a mildly bearish view on the dollar for the rest of the year.