Dollar Unfazed by Disappointing US Jobs Data; Yen Slips

6 May 2024 , 08:58 AM

The yen began the week somewhat weaker, but the dollar was largely stable on Monday as expectations that the Federal Reserve would still cut rates twice this year were reinforced by a dismal U.S. jobs data.

In response to two episodes of alleged Japanese government intervention, the yen last week saw its largest weekly increase in over 17 months, lifting the currency from a 34-year low of 160.245 per dollar.

Following the jobs data, the dollar lost more ground, and the yen fell 0.43% to 153.62 per dollar in early trading on Monday. On Friday, it reached a three-week high of 151.86.

Last week, Mainland China’s markets were closed for three days. However, the broad decline in the dollar following statistics showing a weakening U.S. jobs market, Fed Chair Jerome Powell reaffirming the central bank’s easing bias, and Japan’s intervention to drive up the yen had caused the offshore yuan to increase.

The offshore yuan increased by more over 1% last week, closing at 7.1959 per dollar.

Britain and Japan are also closed on Monday for holidays, which is probably why there was lesser volumes. However, traders will be extremely vigilant throughout the day because Japanese authorities chose to intervene in the yen market during the quiet periods of the previous week.

According to economists, the Bank of Japan’s anticipated expenditure of over 9 Trillion yen to support the weak yen last week has only temporarily strengthened it, since the market still sees the currency as a sell.

Non-commercial traders, which include hedge funds and speculative trades, decreased their yen short positions to 168,388 futures contracts in the week ended April 30, according to the Commodity Futures Trading Commission’s weekly commitments of traders report.

Data released on Friday revealed that, despite evidence of a cooling labour market, expectations that the US central bank may implement a “soft landing” for the economy were raised. U.S. employment creation slowed more than anticipated in April, and annual pay growth dropped below 4.0% for the first time in almost three years.

As of right now, markets have fully factored in 45 basis points of rate cuts this year, including a November reduction.

As anticipated, the Fed kept interest rates unchanged at the end of its two-day meeting on monetary policy, but it did indicate that it was still inclined to eventually drop rates, even though it might take longer than anticipated.

The dollar index, which compares the value of the US dollar to six competitors, was at 105.12 on Friday after hitting a three-week low of 104.52.

The sterling was last seen at $1.2547, up 0.02% on the day, while the euro was up 0.07% at $1.0765.

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