By Kevin Buckland
TOKYO (Reuters) – The safe-haven Japanese yen rose on Wednesday while riskier currencies such as the Australian dollar and the British pound fell as traders rushed to take on risk after the worst sell-off in nearly a month on Wall Street and heavy losses in Asian shares.
The catalyst was ostensibly some weak US manufacturing data, which raised concerns about a hard landing for the world’s largest economy, with traders already feeling nervous ahead of crucial monthly payrolls data on Friday.
“The bears are back in full force,” said Michael Brown, chief research strategist at Pepperstone, adding that weak factory numbers by themselves do not justify the market’s response of this magnitude.
“However, it does indicate an increased sensitivity of participants to incoming data, especially negative surprises.”
The yen rose about 0.4% to 144.89 yen per dollar before trading up about 0.2% at 145.15 yen by 0525 GMT, following a 1% rise overnight against the broadly stronger dollar.
The USD/JPY pair tends to track long-term US Treasury yields, which fell by about 7 basis points overnight and continued to decline in Asian trading hours to 3.8253% as investors flocked to safe haven bonds.
But the dollar remained strong against most other major currencies, as it tends to attract safety demands even when the U.S. economy is the focus.
The pound was steady at $1.3117 after falling 0.23% overnight. The euro rose 0.13% to $1.1058 after falling 0.26% in the previous session.
The Swiss franc, another safe haven, rose about 0.26% to 0.8480 against the dollar.
The pound fell 0.13% to $0.67025, extending Tuesday’s 1.2% decline. It had earlier fallen about 0.4%.
Cryptocurrencies also declined, with Bitcoin and Ethereum falling by about 2.9% and 3.4%, respectively.
Risks to a soft landing scenario for the US economy – which has been gaining momentum in markets recently – have prompted traders to raise the odds of a 50 basis point Federal Reserve rate cut on September 18 to 38% from 30% the day before, according to CME Group’s FedWatch tool.
Economists polled by Reuters expect Friday’s report to show a gain of 165,000 jobs in the United States in August, up from a gain of 114,000 jobs in July.
In the meantime, investors will be closely watching Wednesday’s jobs data and Thursday’s unemployment claims report.
US markets were closed for the Labor Day holiday on Monday, and returned on Tuesday to reveal a weak survey from the Institute for Supply Management (ISM), which indicated that factory activity in the country will remain weak for some time.
“That was supposed to show a gain, but it actually showed a decline, which has people wondering again if the Fed is late to action,” said Sam Stovall, chief investment strategist at CFRA.
“This may be a short week but it will be important and crucial for investor confidence. People will still be nervous,” he added.
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