By Samuel Indyk and Ankur Banerjee
LONDON (Reuters) – The dollar was slightly lower on Monday after a soft U.S. jobs report boosted bets that the Federal Reserve could cut rates further this year, while the yen fell after last week’s suspected intervention took a wild ride fueled.
The yen posted its strongest weekly gain since early December 2022 last week, following two bouts of suspected intervention from Tokyo to pull the currency away from a 34-year low of 160.245 per dollar. This week the price rose by 3.5%.
The yen was lower on Monday, falling 0.5% to 153.69 per dollar.
The Japanese and UK markets are both closed on Monday for a public holiday, which is likely to result in lower volumes, but with Japanese authorities choosing last week’s quiet periods to intervene in the foreign exchange market, traders will be on high alert throughout the day .
The more than 9 trillion yen that the Bank of Japan estimates it spent to prop up the weak yen last week will only buy it for a while, according to analysts, as the market still sees the currency as a selling tool.
While Japan clearly has the capacity to intervene more, the broader macro environment remains quite negative for the yen, Goldman Sachs strategists said, noting that the “success” of an intervention can only go so far.
“But buying time is still valuable as it reduces the chance of economic disruptions from the exchange rate adjustment and could stabilize the currency until the economic backdrop becomes more favorable to the JPY,” they said in a note.
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The yen is under pressure as US yields have risen and Japan’s have remained near zero, pushing cash out of the yen into higher-yielding assets.
The latest weekly report from US regulators shows that non-commercial traders, a category that also includes speculative trades and hedge funds, reduced their short positions in the yen to 168,388 futures contracts in the week ended April 30, still close to their largest bearish positions since 2007.
“In a week that features few US data and many Fed speeches, the Fed’s post-payroll rhetoric will determine whether the dollar-yen retests the 160 level soon,” said Nicholas Chia, Asia macro strategist at Standard Chartered (OTC:).
FED PAD
Data on Friday showed U.S. job growth slowed more than expected in April and annual wage growth fell below 4.0% for the first time in nearly three years, as signs of a labor market cooling boosted optimism that the US central bank could achieve a “soft economy”. landing” for the economy.
Markets are now pricing in almost 50 basis points of cuts this year, with a rate cut in November fully priced in.
“This is definitely what the Fed wants to see more of and the first report in a long time has delivered a negative surprise,” said Dane Cekov, senior currency strategist at Nordea.
The Fed kept rates steady as expected at the end of its two-day monetary policy meeting last week, but signaled that it is still leaning towards possible rate cuts, even if they may take longer to materialize than initially expected.
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“The weaker dollar trend started with the Fed and Powell, when it effectively closed the door to further rate hikes,” Nordea’s Cekov said.
The , which measures the U.S. currency against six others, was at 105.10 after hitting a more than three-week low of 104.52 on Friday. The index is up almost 4% this year, but fell almost 1% last week.
The euro last traded at $1.0764, while sterling rose 0.2% to $1.25715, ahead of a policy announcement from the Bank of England on Thursday, where interest rates are expected to be kept at 5.25%.
Markets in mainland China opened after being closed for three days last week. At the time, the rate had risen due to the dollar’s broad retreat.
The offshore yuan fell to 7.2194 per dollar after rising more than 1% last week. On the spot market, the dollar opened at 7.2009 per dollar, the strongest since March 25. The last one was at 7.2149. [CNY/]
