Dollar Weakens, Yen Slips, as Bitcoin Stabilizes

The US dollar weakened against the yen on Friday, losing ground against other major currencies following disappointing housing data from the United States. Investors, closely watching the Federal Reserve’s next move on interest rates, reacted unfavourably to the news. 

The decline in U.S. single-family home construction in July, driven by higher mortgage rates and escalating home prices, has dampened market sentiment. The greenback dropped by 0.96% against the yen, settling at 147.87 after reaching a two-week high of 149.40 the previous day. However, despite this decline, the yen remains on track for its worst weekly performance since June.

Yen remains weak despite earlier gains

The yen experienced a sharp decline last week, contrasting with August 5th, when the Bank of Japan unexpectedly raised interest rates. This unexpected move and fears of a U.S. recession led traders to unwind yen-financed carry trades. However, the situation stabilized after Bank of Japan Deputy Governor Shinichi Uchida reassured markets that no further rate hikes were imminent, given the current market conditions. 

As a result, traders began rebuilding their short positions, signalling a return to previous strategies. Meanwhile, Japanese investors have been active, with significant investments in long-term overseas bonds during the week leading up to August 10th, marking the highest level in 12 weeks. Foreign investors also returned to Japanese markets, purchasing short-term debt after eight consecutive weeks of selling. Additionally, they bought approximately $3.5 billion in Japanese shares, reversing a trend of three weeks of net selling.

Bitcoin maintains stability amid global market turmoil

Bitcoin has shown resilience in the cryptocurrency market, stabilizing after a global downturn that briefly pulled it below $50,000. The introduction of spot Bitcoin ETFs in the U.S. in January has played a crucial role in maintaining Bitcoin’s stability during turbulent times. Since their launch, these ETFs have attracted approximately $17.5 billion in net inflows, pushing total assets in these funds to $53.5 billion. 

The Grayscale Bitcoin Trust converted to an ETF earlier this year and has seen $1.9 billion in inflows since the transition. Even newer entrants, such as the Bitwise Bitcoin Fund, have drawn $274 million in inflows. Despite Bitcoin’s volatile year, with prices ranging from $45,000 at the start of the year to a peak of $71,000 in May, the cryptocurrency has recently stabilized within the $63,000 to $65,000 range. This stability is somewhat unexpected, especially considering the volatility typically observed after the April halving event. Over the past week, Bitcoin has been trading steadily around $59,400, indicating a potential shift toward a more stable pattern shortly.

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