SINGAPORE- The dollar was steady on Wednesday, dragging the yen away from a seven-month peak as currency markets regained a semblance of calm in a week that began with a massive shakeout in assets driven by recession fears and unwinding of popular carry trades.
The yen was 1 percent lower at 146.43 per dollar in early trading, inching away from the seven month high of 141.675 it touched on Monday, it is still up 3 percent in August and well above the 38-year lows of 161.96 it was languishing in just at the start of July.
The yen’s fortunes have shifted since then as bouts of well-timed interventions from Tokyo in early July and a hawkish shift from the Bank of Japan last week led investors to bail out of once-popular carry trades, in which traders borrow the yen at low rates to invest in dollar-priced assets for higher returns.
The market volatility was exacerbated by a softer-than-expected US job report on Friday, and disappointing earnings from major tech firms, sparking a global sell-off in riskier assets as investors feared the US economy was heading for a recession.
“The yen undervaluation was a bit overstretched,” said Aninda Mitra, Head of Asia Macro and Investment Strategy, BNY Advisors Investment Institute. “There was an adjustment that was waiting to happen.”
The swing in yen positioning seen over the last one month was among the largest on record, according to strategists at JP Morgan, with their models suggesting 65 percent of yen shorts have now been covered as of Aug. 6.
“While there are still JPY shorts out there, positioning-induced volatility in USD/JPY may begin to edge down from here.”
On Wednesday, the euro was little changed at $1.092675, while sterling last fetched $1.26985 in Asian hours, not far from the five-week low it hit in the previous session.
The US dollar index which measures the greenback against six rivals, eased to 102.94 but is up from the seven month low of 102.15 it touched on Monday.
