According to Private Payrolls Report, on Thursday, the yen and euro got a boost they were hoping for as the dollar and U.S. Treasury yields hit a roadblock. This happened because the growth of private sector jobs in the U.S. slowed down significantly, causing investors to rethink their expectations that the Federal Reserve would raise interest rates again this year.
Earlier this week, the dollar index, which measures the strength of the dollar against other currencies like the euro and yen, reached its highest point in 11 months. However, it leveled off at 106.75 after the data released on Wednesday revealed that private sector job growth in the U.S. was much weaker in September than anticipated.
Even though experts say we still need more data to be completely sure about how quickly the job market is slowing down, the financial markets have changed their predictions about whether the Federal Reserve will increase interest rates in November. Now, they believe there’s an almost 80% chance that the central bank will keep rates the same. Just on Tuesday, they thought there was only a 28.2% chance of another rate hike.
The yields on longer-term U.S. Treasury bonds, which had recently reached the highest levels in 16 years, have now eased a bit. The yen, which tends to be influenced by U.S. bond yields, is currently trading at around 149 yen per dollar, which is about 0.1% stronger than before. It had hit 150.165 on Tuesday, which was its weakest performance since October 2022.
Ulrich Leuchtmann, who heads FX and commodity research at Commerzbank, suggested that the recent negative economic data from the United States had a stronger impact on the market. This might be because the ambitious levels of the euro/dollar exchange rate below $1.05 and 10-year Treasury note yields above 4.80% required substantial supporting data.
Currently, the euro is trading at $1.0511, showing a slight increase of 0.06%. It had fallen to its lowest point this year at $1.0448 on Tuesday. Over the past three months, the euro has experienced a significant decline of more than 14% against the dollar.
Keeping an eye on interventions.
Earlier this week, there was talk about the yen making a strong recovery after it crossed the 150 yen per dollar mark. Some believed that Japan might have taken steps to support its currency, but data from the Bank of Japan’s money market on Wednesday suggested that they probably didn’t intervene.
Finance Minister Shunichi Suzuki didn’t comment on whether Tokyo had indeed intervened, but he emphasized the importance of currency rates moving steadily based on economic fundamentals.
The yen received a boost not only from lower U.S. Treasury yields but also from a drop in oil prices overnight. However, according to Kyle Rodda, a markets analyst at Capital.com, this yen strength might only be temporary.
On Thursday, oil prices started to climb again after an OPEC+ panel decided to maintain oil production cuts, which would keep the oil supply relatively tight. This helped recover some of the losses from the previous day.
The 150 yen per dollar mark is seen as a significant threshold, and the Japanese Finance Ministry is keen to defend it. However, Rodda believes that any currency intervention would likely have limited impact.
