Yen Surges as Traders Reassess Fed Rate Hike Chances

The Japanese yen has gained strength against the US dollar, despite weaker-than-expected economic growth data. The currency is now 0.2% stronger at 159.075 yen per dollar, following a second straight day of modest gains. This trend suggests that traders are reining in expectations for a Federal Reserve interest rate hike this year.

Japan's GDP for the second quarter expanded at an annualized 1.1%, with government consumption jumping and suggesting that the country's expansionary fiscal policies are starting to have an impact. However, the details of the data were mixed, with some analysts noting a decent pace of growth despite the limiting effects of higher energy prices.

The US dollar index has fallen 0.1% to 99.501, its lowest levels this month, as investors reduce their expectations for rate hikes from the Fed. Fed funds futures now imply a 69.9% probability that policymakers will hold interest rates at their next meeting on September 16.