Yen Rebounds Amid Economic Data; Dollar and Sterling Shifts

The yen strengthened against the dollar on Friday despite being on track for its largest weekly decline since June. Recent U.S. economic data alleviated recession fears and supported anticipations of gradual Federal Reserve interest rate cuts. Risk-sensitive currencies like sterling rallied as economic outlooks improved.

The yen rose against the dollar on Friday, but it still seemed poised for its largest weekly decline since June, driven by recent U.S. economic data that eased recession fears and bolstered expectations of gradual Federal Reserve interest rate cuts. The dollar was 0.8% softer against the Japanese yen at 148.070, following a two-week high of 149.40 in the prior session.

Currencies sensitive to risk, such as the British pound, were buoyant as an improved economic outlook sparked a rally in equities. Data from Thursday revealed a drop in new U.S. unemployment benefit claims to a one-month low and a substantial increase in retail sales last month, challenging predictions that the Fed would implement a 50 basis-point rate cut next month.

"We believe the economic slowdown is present, and inflation is decelerating while the Fed will initiate rate cuts. However, it won't be a panic situation as was speculated a week or two ago," said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International. "We anticipate 2-3 rate cuts, most likely two, unless there is a sustained rise in the unemployment rate seen in the latest payroll report."

(With inputs from agencies.)