The US dollar fell to a three-month low amid concerns over US public debt and rising uncertainty, while the yen remained stable as markets awaited signals of a Bank of Japan rate hike.
In trading late last week, the US dollar was pressured by renewed fiscal concerns and new uncertainty, and was trading near a three-month low on Monday morning. A sharp rise in long-term Treasury yields heightened market caution, while an announcement that the US Treasury would double its long-term Treasury purchases to $40 million per operation also contributed to the dollar's weakness.
At the same time, August services-sector growth, which indicated the resilience of the US economy, reached its highest level in about two years, limiting the dollar's decline. The USD Index was trading near 98.83, almost unchanged from the end of last week. Markets are closely watching key events, including speeches at Jackson Hole, for clues about the Fed's future rate policy.
Uncertainty over the situation in the Middle East and trade policy is also making investors more cautious, while attention is focused on the impact of tariff policy as trade tensions between the US and Canada resurface. Many market participants expect pressure on the US dollar to persist, with the Treasury bond market and inflation remaining the central focuses going forward.
The Japanese yen is trading at ¥158.91 per US dollar, but its recovery following the intervention at the end of July has been limited. Some observers say a sustained short-term rise in the yen is unlikely unless the interest-rate differential, a fundamental driver of yen weakness, begins to narrow. Market participants are watching the Bank of Japan's future comments and policy decisions.