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The Dollar/Yen posted a solid gain last week as sentiment shifted to “risk on” following a series of supportive events. These included an easing of geopolitical tensions, better-than-expected economic data from China, upbeat news over U.S.-China trade relations and positive comments from Fed Chair Jerome Powell. The shift in sentiment led to the shedding of safe-haven assets like the Japanese Yen, Swiss Franc and gold. U.S. Treasury yields also rose for the week and stocks settled in a position to challenge the all-time highs.
Last week, the USD/JPY settled at 106.914, up 0.643 or +0.61%.
U.S.-China Resume Trade Talks
The Dollar/Yen rally actually began on August 26 with the formation of a dramatic reversal bottom at 104.463. The move was triggered when President Trump said China wanted to resume trade talks. Although the press didn’t believe Trump because China failed to verify the comment at the time, his remarks proved to be true with China announcing the resumption of trade talks last week. This reduced the Japanese Yen’s appeal as a safe-haven asset.
China’s Ministry of Commerce said Thursday that the leaders of the U.S. and Chinese trade talks held a phone call in the morning and agreed to meet in early October for another round of negotiations.
Tensions Ease in Hong Kong
The Japanese Yen fell on Wednesday following reports that a controversial extradition bill is set to be withdrawn. However, this may only be a temporary reprieve from the violence that has plagued the region for months.
China Services PMI Impressive
Demand for safe-haven assets like the Yen fell and stocks soared on Wednesday after the release of a report that showed the Caixin/Markit Services Purchasing Managers’ Index came in at 52.1 in August, its highest since May. The 50-mark in PMI readings separates growth and contraction. Official data for August released over the weekend showed services sector activity picking up for the first time in five months in August.
Fed Chair Powell Optimistic
The Dollar/Yen held steady on Friday, shrugging off a mixed U.S. Non-Farm Payrolls report released earlier in the session. Helping to underpin the USD/JPY was Fed Chair Jerome Powell who said the central bank’s pivot this year to lower interest rates has helped sustain U.S. economic growth.
“The Fed has through the course of the year seen fit to lower the expected path of interest rates,” he said. “That has supported the economy. That is one of the reasons why the outlook is still a favorable one.”