On Monday, the US dollar recovered ground against most of the majors and the Japanese yen steadied at about 7-month highs versus the U.S. currency as some of the recent days’ moves reversed slightly, and a semblance of calm returned to the market.
The dollar traded at about 144.28 yen, flat for the day, after declining versus the Japanese currency for five consecutive sessions. Over the past five trading days, the greenback has fallen around 6% versus the yen.
A reassessment was also done across global equity markets, and on Tuesday, Japan’s nikkei index gained 10% after Monday’s 12% drop, while European shares also attempted to recover.
Corpay’s chief market strategist, Karl Schamotta, said it seems as if some of the moves over the past few days were overdone.
He said safe-haven demand was dissipating, and flows were reverting back to normal across most major currency pairs.
The recent gains of the yen were driven by an increase in volatility that resulted in investors bailing out of popular carry trades, reinforced by Friday’s interest rates hike by the Bank of Japan.
Carry trades involve investors borrowing from low interest rate economies like Switzerland and Japan to fund investments in higher-yielding assets elsewhere, and rely on low volatility.
