By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) – The dollar fell slightly on Monday as a weak U.S. jobs report boosted bets that the Federal Reserve may cut interest rates this year, while the yen fell after suspected intervention last week sparked a wave of volatility.
Last week, the yen recorded its strongest weekly gain since early December 2022 after two rounds of suspected intervention from Tokyo to pull the currency away from a 34-year low of 160.245 to the dollar. It rose 3.5% during the week.
On Monday, the yen fell 0.5% to 153.69 per dollar.
Japanese and British markets are closed for holiday on Monday, which will likely lead to lower trading volumes, but with Japanese authorities opting for quiet periods last week to intervene in the currency market, traders will be on high alert during the day.
The more than 9 trillion yen the Bank of Japan spent to prop up the weak yen last week was only bought for some time, with the market still viewing the currency as a sell, analysts say.
While Japan has the potential to intervene further, the broader macro environment remains very negative for the yen, according to strategists at Goldman Sachs, noting that the “success” of the intervention can only go so far.
“But buying time is still valuable, as it reduces the potential for economic disruptions as a result of an exchange rate adjustment and can stabilize the currency until the economic backdrop becomes more supportive of the Japanese yen,” they said in a note.
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The yen came under pressure as interest rates rose in the United States and interest rates in Japan remained near zero, causing money to move out of the yen and into higher-yielding assets.
The latest weekly report from US regulators showed that non-commercial traders, a category that includes speculative trades and hedge funds, reduced their short positions in yen to 168,388 futures contracts in the week ending April 30, still close to their largest bearish positions since 2007.
“In a week light on US data and full of Fed speeches, the Fed’s post-payrolls speech will determine whether USD/JPY retests the 160 level anytime soon,” said Nicholas Shea, Asia strategist at Standard Chartered (OTC). soon”. .
Fed path
Data on Friday showed US job growth slowed more than expected in April and the annual wage increase fell below 4.0 percent for the first time in nearly three years, as signs of a slowing labor market sparked optimism that the US central bank may engineer… Soft monetary policy “landing” the economy.
Markets are now pricing in nearly 50 basis points of cuts this year, with the November rate cut in full.
“This is certainly what the Fed wants to see more of, and the first report in a while surprised to the downside,” said Dane Sikhoff, chief foreign exchange market strategist at Nordea.
The Federal Reserve held interest rates steady at the conclusion of its two-day monetary policy meeting last week, as expected, but indicated it remains leaning toward eventual rate cuts, even if they may take longer than initially expected.
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“The dollar's weaker trend started with the Fed and Powell when they basically closed the door on further rate hikes,” Nordea's Sikov said.
The index, which measures the US currency against six other currencies, reached 105.10, after touching its lowest level in more than three weeks at 104.52 on Friday. The index rose by about 4% this year, but fell by about 1% last week.
The euro last recorded $1.0764, while the British pound rose 0.2% to $1.25715 before the Bank of England's policy announcement on Thursday, when interest rates are expected to remain at 5.25%.
Mainland China markets opened after being closed for three days last week. At that time, the dollar rose on the back of a broad decline in the dollar.
The yuan fell in foreign transactions to 7.2194 per dollar, after gaining more than 1% last week. In the spot market, it opened at 7.2009 to the dollar, its strongest level since March 25. The latest price was at 7.2149. (CNY/)
