USD/JPY declines further as focus turns to Fed meeting

USD/JPY started the new trading week by declining further, retracing the gains made after having surged to a six-week high of 124.48 early last week. The pair was last down 0.2 percent at 123.56 after touching a near two-week low of 123.49. Weighing on the USD was the drop in U.S. shares and bond yields which made the dollar less favorable.

Markets are focused on the upcoming Federal Reserve policy meeting (FOMC) which takes place on July 28-29. The announcement on Wednesday could either lift back the greenback, or drop it. Investors will look for clues for the timing of a rate “lift-off.” Steadily rising expectations the U.S. central bank could begin hiking interest rates as early as September have been a key factor behind the dollar’s gains over the past month.

EUR/USD rose 0.2 percent to $1.1000, having gained about 1.4 percent last week. The euro has lost as much as 5 percent against the dollar since mid-June on Greek debt worries and the divergence of U.S. and European monetary policies, but a technical correction to the dollar’s rally gave the euro a breather last week.

AUD/USD struggled near six-year lows versus the dollar, trading just above Friday’s trough of $0.7260, its lowest since May 2009. The Aussie is faced with the prospect of its central bank taking the opposite step and easing further. The currency is already feeling the heat from lower commodity prices, and declined further late last week on weak factory data from China, Australia’s main trading partner.

NZD/USD fared a little better, climbing 0.3 percent to $0.6599 to extend the distance between the six-year low of $0.6498 struck mid-month. The kiwi was helped last week when the Reserve Bank of New Zealand eased its cash rate by less than some had anticipated.
U.S. crude oil traded near four-month lows on Monday of 47.74, weighed by concerns over oversupply and potentially weaker demand from major consumers like China.

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