Yen Falls Sharply, Awaits BoJ

At 2:00 AM Germany Q2 GDP q/q (exp 0.3%, prev 0.3%)
Germany Q2 GDP y/y (exp 2.5%, prev 2.5%)
BoJ August Report
At 8:30 AM US Weekly Jobless Claims (exp 320k, prev 322k)

The yen came under pressure across the board as global equities rebounded, with Tokyo’s Nikkei average opening 2% higher at the start of trading. The recent liquidity injections from global central banks have, for the time being, quelled market fears and stabilized financial volatility. While it may be premature to determine whether traders are jumping back into the carry trades, it is apparent that some of the heightened risk aversion may be starting to subside. The yen traded near 116 against the dollar and 231.56 versus the sterling.

The dollar slipped against the euro and pound, falling to 1.3557 and 1.9964, respectively. We anticipate range trading from the greenback as traders discern the impact of the subprime crisis on the economy as a whole and determine when the FOMC will ease its federal funds rate. We do not expect a rate cut from the Fed in September; instead we look for a 25-bp cut by October.