NEW YORK/LONDON >> The yen fell against the dollar today in calmer currency market trading after volatile moves last week, while investors weighed the odds of a deep Fed interest rate cut next month ahead of a slew of U.S. economic data.

The respite follows a tumultuous week that began with a massive sell-off across currencies and stock markets, driven by worries over the U.S. economy and the Bank of Japan’s hawkishness.

Last week ended calmer, with Thursday’s stronger-than-expected U.S. jobs data leading markets to pare bets for Federal Reserve rate cuts this year.

“The U.S. equities have recovered rather nicely from their big profit sell-off, and that’s probably giving the dollar a little bit of boost because equities are doing better, and the economy is not so bad,” said Joseph Trevisani, senior analyst at FXStreet.com in New York. “We are back to a sensible view of the economy.”

Still, investors are pricing 100 basis points of Fed cuts by year-end, according to the CME Group’s FedWatch tool, and U.S. producer and consumer price numbers due on Tuesday and Wednesday could shift market perceptions.

“There’s a lot of data coming out around the world that is going to have some bearing on monetary policy decisions,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

“I think in the context of calmer equity markets, we’ve seen a bit of repricing of Fed rate cut expectations, which is helping to stabilize the dollar to some extent.”

The dollar was trading at 147.74 yen, up 0.8%, and was also up nearly 0.5% on the Swiss franc, at 0.8692.

The euro edged up 0.04% to $1.0918, while the dollar index was slightly up at 103.29. Sterling remained flat at $1.2762.

A week ago, the euro rose as far as $1.1009 for the first time since Jan. 2.

CARRY TRADES UNWIND

Markets, in particular Japan’s, were rocked last week by an unwinding of the hugely popular yen carry trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields.

The violent sell-off in the dollar-yen pair between July 3 and Aug. 5, sparked by Japan’s intervention, a Bank of Japan rate rise and then the unwinding of yen-funded carry trades, caused it to fall 20 yen.

Leveraged funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, U.S. Commodity Futures Trading Commission and LSEG data released on Friday showed.

The yen reached its strongest level since Jan. 2 at 141.675 per dollar on Aug. 5. It is still down around 4% versus the dollar so far this year.

J.P. Morgan analysts revised their forecast for the yen to 144 per dollar by the second quarter of next year, and said that implied the yen would consolidate in the coming months.

“Carry trades have erased year-to-date gains; we estimate 65-75% of positioning being unwound,” they said in a note on Saturday.

Additional reporting by Vidya Ranganathan in Singapore.