The yen fell against the dollar on Monday in calmer currency market trading after volatile moves last week, while investors weighed the odds of a deep Fed 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 interest rate cuts this year.

“If global investor risk sentiment continues to improve in the week ahead, it is likely that market expectations for Fed rate cuts will continue to be scaled back,” currency analysts at MUFG said in a note.

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 prices numbers due on Tuesday and Wednesday could shift market perceptions.

“It’s more a case of market squaring up a little bit ahead of the U.S. inflation data,” said Christopher Wong, currency strategist at OCBC Bank in Singapore.

The dollar was trading at 147.55 yen, up 0.7%, and was also up nearly 0.5% on the Swiss franc, at 0.8694.

The euro dipped 0.1% to $1.0923, while the dollar index was flat at 103.22. Sterling paused at $1.2761.

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 last Monday. 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.