(Bloomberg) -- Macro funds in Asia used the dollar’s drop Thursday as an opportunity to buy it, in particular against the yen, according to traders.

A Bloomberg gauge of the currency hit a one-month low after data showed cooling US inflation before recovering through the session and extending gains early Friday. The dollar-yen fell briefly below the 154 level Thursday before it too pushed higher.

Investors in Europe also took Thursday’s dollar weakness as an opportunity to buy it against the yen, albeit in modest amounts, according to Antony Foster, head of G-10 currency spot trading at Nomura International.

The yen’s bounce “feels like a mean-reversion exercise rather than large flow driving us higher,” he said. “We have seen some buying of dollar-yen this morning from a variety of accounts, around and below the 154 level but the sizes have been small.”

The Japanese currency has strengthened away from areas that prompted suspected intervention in recent weeks and traded around the 155.80 per dollar level in Asia trading Friday. The Bloomberg Dollar Spot Index rose 0.1% and was some 0.4% off its intraday low from Thursday.

Short-term investment funds in Asia seem reluctant to build bearish dollar positions, according to three traders in the region who asked not to be named as they are not authorized to speak publicly. An unwind of long dollar positions after cooling US inflation data didn’t follow through to the initiation of new short bets, they said. 

Bloomberg’s gauge of the greenback is threatening to break down from its 2024 uptrend as investors debate just when the Federal Reserve is likely to cut interest rates. Market expectations are leaning toward September, even though some Fed officials have mounted a pushback of sorts, suggesting the central bank should keep borrowing costs high for longer.

Having entered the year predicting the greenback would decline, investors have been forced into a rethink by a robust US economy and sticky inflation requiring the Fed to hold off cutting rates. The US currency has climbed against all its major peers this year.

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