On Monday, the currency markets witnessed a relatively stable performance, with the dollar holding its ground following the release of softer-than-expected U.S. jobs data. This data fueled speculation among investors that the Federal Reserve might consider implementing two rate cuts within the year. Meanwhile, the Japanese yen experienced a slight weakening as the week commenced.
The yen had seen a significant surge last week, marking its most robust weekly gain in over 17 months. This surge was attributed to suspected interventions by the Japanese government aimed at halting the currency’s decline, which had seen it reach a 34-year low against the dollar. However, on Monday, the yen weakened by 0.43% against the dollar, trading at 153.62 per dollar early in the day, after reaching a three-week high of 151.86 on the previous Friday. This decline was exacerbated by the dollar’s additional weakness following the release of the jobs data.
Last week, the mainland Chinese markets remained closed for three days, yet the offshore yuan appreciated against the dollar as the latter faced broad-based selling pressure post the employment data. The offshore yuan was quoted at 7.1959 per dollar, marking a gain of over 1% throughout the week.
Japan observed a national holiday on Monday, and with Britain also closed, trading volumes were anticipated to be lower. However, given Japan’s recent interventions in the forex market during quiet periods, traders remained vigilant throughout the day.
Despite the substantial intervention by the Bank of Japan, estimated at over 9 trillion yen, to bolster the yen last week, analysts remain cautious, indicating that the currency may still be susceptible to selling pressure. Although non-commercial traders reduced their short positions on the yen according to the Commodity Futures Trading Commission’s weekly commitments of traders report, significant bearish sentiment still persists.
Goldman Sachs strategists noted that while Japan’s interventions may provide temporary relief, the broader macroeconomic backdrop remains challenging for the yen. Nonetheless, they highlighted the importance of buying time to mitigate potential economic disruptions arising from abrupt currency adjustments.
In the United States, the jobs report released on Friday indicated a slowdown in job growth, coupled with a decrease in annual wage increases. This fueled speculation that the Federal Reserve could implement rate cuts to facilitate a soft landing for the economy.
Market expectations now reflect a high likelihood of 45 basis points of rate cuts within the year, with a cut in November already fully priced in. Although the Fed maintained interest rates unchanged at its recent meeting, it hinted at a continued inclination towards eventual rate cuts, albeit possibly delayed.
The dollar index, which compares the greenback against six major currencies, remained relatively stable at around 105.12 on Monday, albeit having touched a three-week low of 104.52 on Friday. Meanwhile, the euro and sterling made modest gains against the dollar, with the euro up 0.07% at $1.0765 and the sterling at $1.2547, up 0.02% on the day.
