Dollar Hits Two-Month Low Against Yen Amid Pre-BoJ Speculations

The U.S. dollar fell to a two-month low against the yen due to unwound carry trades ahead of the Bank of Japan's meeting. The yen also rose against the euro, while the dollar index dipped. Investors await U.S. GDP and inflation data, and anticipate possible rate changes by the BOJ and Federal Reserve.

The U.S. dollar dropped to its lowest in more than two months against the yen on Wednesday. This decline was driven by the unwinding of short-yen carry trades in anticipation of next week's Bank of Japan (BOJ) meeting, where investors expect a hawkish move to begin removing monetary stimulus. Concurrently, the yen reached its highest level against the euro since mid-May.

The dollar index, which measures the greenback's strength against a basket of six major currencies including the yen and the euro, fell by 0.34% to 104.12. It briefly pared losses following the release of S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, edging up to 55.0 this month—its highest level since April 2022.

The pivotal macroeconomic events this week include Thursday's release of the first estimate of U.S. second-quarter GDP and Friday's presentation of the Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge for the Federal Reserve. Sources suggest the BOJ may debate raising interest rates and reducing bond purchases at its July 30-31 meeting. This comes as the Federal Reserve holds its meeting on the same days, where a pivot toward easing in September remains a possibility.

(With inputs from agencies.)