Yen Hits Seven-Month High as Dollar Weakens

Summary

The yen surged to a seven-month high against the US dollar as expectations grew for further Bank of Japan rate rises, while the dollar index slipped. Sterling and the euro were broadly flat, while FTSE futures were unchanged and US stock futures edged lower. Gold nudged higher to $4,407 an ounce, while Brent crude approached $100 as renewed US-Iran tensions intensified concerns over Gulf supplies.

Equities

The FTSE 100 closed 0.1% lower at 10,822.13 points on Monday, while the FTSE 250 fell 0.3%. London trading volumes were well below their one-month average as US markets were closed for Labor Day, while oil prices remained near six-week highs and expectations increased that the US Federal Reserve could raise interest rates this month.

Most FTSE 100 sectors closed lower on Monday. Personal care, drug and grocery stocks fell 0.9%, while the beverages sector dropped 1.3%, although gains for major energy companies helped limit the decline in the benchmark index.

BP and Shell both closed around 1% higher on Monday as oil prices traded near their highest levels in six weeks. Crude supplies remained constrained by disruption to flows through the Strait of Hormuz following further strikes involving the US and Iran.

Standard Life gained 2% on Monday after the insurer reported first-half profit ahead of market expectations. The results helped its shares outperform the wider London market during an otherwise subdued session.

Spire Healthcare rose around 3% on Monday after agreeing to a takeover by a consortium comprising funds managed by Toscafund, Three Hills and Ares. The transaction values the private healthcare group’s share capital at approximately £1.026 billion.

Ashmore closed 1% higher on Monday after the emerging markets-focused asset manager reported a 17% increase in annual profit. The result was slightly below analysts’ forecasts despite the strong year-on-year increase.

The FTSE 100 entered Monday’s session after finishing the previous week little changed. The FTSE 250 had recorded its largest weekly decline since early June, with higher bond yields weighing on the mid-cap index.

US stock markets were closed on Monday for the Labor Day holiday, meaning there was no regular trading in the S&P 500, Nasdaq or Dow Jones Industrial Average and no Monday share-price performance for US-listed companies. US trading resumes on Tuesday, with investors also awaiting inflation figures later this week following Friday’s stronger-than-expected US employment data, which increased expectations of a Federal Reserve rate rise in September.

Forex & Commodities

The US dollar was subdued early on Tuesday as the Japanese yen extended its rally to a seven-month high. The yen strengthened to 152.9 per dollar in Asian trading before easing to 153.5, while the dollar index stood at 98.84. Sterling was largely flat at $1.354 and the euro held around $1.162.

The yen’s advance came as traders increased bets on further Bank of Japan tightening and continued to unwind short positions and carry trades. Japan’s finance minister said on Tuesday that Tokyo and Washington remain aligned on foreign exchange policy and would continue communicating closely to support orderly currency movements.

Attention now turns to US inflation figures ahead of the Federal Reserve’s 15–16 September meeting. Following stronger-than-expected August employment data, markets were pricing roughly a 60% probability of a rate increase this month, although Fed Governor Christopher Waller has indicated that cooling inflation could support leaving rates unchanged.

Spot gold edged higher early on Tuesday to $4,407 an ounce as the dollar weakened. Gold had fallen over the previous two sessions after US employment growth accelerated sharply in August and unemployment remained at 4.1%. US producer price inflation is due on Thursday, followed by consumer price inflation on Friday.

Oil extended its gains early on Tuesday as renewed US-Iran tensions increased concerns about Middle Eastern supply. Brent rose 1.3% to $98.25 a barrel, after reaching $98.79, its highest since 24 July. WTI climbed 2.4% to $93.70 after touching $94.21, its highest since 8 June.

Shipping through the Strait of Hormuz slowed at the start of the week following Iranian threats of retaliation against further US attacks.