Dollar Softens as Markets Await U.S. Inflation Data While Yen Volatility Continues

The dollar weakened while the yen continued to see volatility as traders anticipated U.S. inflation data. The data will provide insight into the Federal Reserve's potential interest rate cuts. The yen's rally since July, driven by unwinding carry trades, has contributed to market shifts, affecting other currencies like the euro and sterling.

The dollar softened while the yen remained volatile as traders awaited U.S. inflation data for clues on Federal Reserve interest rate cuts. This followed data indicating that U.S. producer prices rose less than expected in July, hinting at moderated inflation.

Erik Nelson, macro strategist at Wells Fargo Securities, noted a slight dollar weakness despite strong core PPI numbers. The yen's sharp rally since July, fueled by the unwinding of popular carry trades, has significantly influenced market trends.

Further insights are expected from Wednesday's consumer price index report, which will guide the Fed's interest rate policy. In other currencies, the euro and sterling have shown relative resilience, partially due to UK jobless rates defying expectations.

(With inputs from agencies.)