July 7 (Reuters) – NEW YORK/LONDON On Friday, the dollar fell as data showed a softening U.S. labour market, dampening expectations for how long the Federal Reserve will keep interest rates higher. Meanwhile, the yen surged on worries that the yield on the 10-year Treasury would rise beyond 4%.
According to the Labour Department’s employment report, the United States added 111,000 fewer jobs in April and May than was previously reported, and in June the economy added the fewest jobs in 2 and a half years.
Despite the fact that the rate of job growth is still high and inflation is still beyond the Fed’s goal rate, a rate hike seems probable for this month. A rise in the number of persons working part-time due to economic factors also showed a weakening labour market.
Risk aversion has been in the spotlight this week, and with the dollar/yen remaining at such high levels, investors worry that Japan would intervene to prop up the yen.
“We’re still within striking distance of 145, which appears to be the line in the sand,” the author says, “and Treasury yields, the 10-year in particular, keeping above 4%, that’s a sign that any moves to the downside in dollar-yen may prove very limited.”
While the euro EUR= rose 0.76 percent to $1.0969, the dollar index =USDfell 0.81 percent to 102.240.
Most central banks are tightening monetary policy to combat inflation, keeping the dollar and other major currencies, with the exception of the Japanese yen, in a narrow trading range.
The Fed’s aggressive stance has kept the currency from falling too much. The European Central Bank is “just as hawkish, if not somewhat more so,” according to Thierry Wizman, a global FX & currencies analyst at Macquarie based in New York.
“There’s a certain horse race going on here, and that creates a certain tension that keeps the euro in that range,” he added.
Short-term Treasury yields hit a new high Thursday, the highest level since 2007, on expectations that the Federal Reserve would raise interest rates by 25 basis points at the end of its two-day policy meeting on July 26.
Futures indicated an 88.8 percent possibility that the Fed will raise rates in three weeks after the employment report. FEDWATCH
The Bank of Japan (BOJ) is expected to adjust its ultra-loose monetary policy sooner rather than later, since the Japanese labour ministry previously revealed regular salaries saw their greatest annual growth in May since early 1995.
The BOJ’s hopes for a positive effect from the tougher pay talks have begun to materialise. “They have been very clear that if they see evidence of more sustained, stronger wage growth, that could give them more confidence that they can beat their inflation target and then look obviously to moving away from loose policy settings,” MUFG analyst Lee Hardman said.
Hardman opined that speculators’ attempts to square their large negative holdings provided more fuel for the yen’s surge.
YEN BEAR, BEWARE
The short position held by speculators in the yen is worth $9.793 billion, according to statistics released by the U.S. regulator last week, making it the highest short position in the yen since May 2022. JPYNETUSD=
For the last two weeks, the yen has hovered around the 145 level, the same level that caused the BOJ to intervene for the first time in decades last autumn. The authorities have made it obvious that they are concerned about the yen’s weakness.
Despite a 0.8% increase to $0.6681, the Australian dollar is still being hammered by disappointing Chinese economic statistics and widespread risk aversion. At 7.2257, the offshore yuan CNH=D3 was down 0.4%.
