By Vidya Ranganathan and Sruthi Shankar
SINGAPORE (Reuters) – The Japanese yen hit its highest level against the dollar since January on Monday, as markets continued their moves triggered last week by weak U.S. labor data that raised recession concerns and expectations of deeper rate cuts from the US. Federal Reserve fueled.
Friday’s jobs data, on top of a series of weak earnings reports from major tech companies and increased concerns about China’s economy, sparked a global sell-off in stock markets, oil and high-yield currencies as investors sought the safety of cash.
The selling continued on Monday, with US Treasury yields falling further, stock indexes in the red, bitcoin being dumped and the dollar losing ground, mainly to the yen.
Carry funding favorite the yen rose as much as 3.4% to 141.675 per dollar at one point before falling to 143.165. The currency was trading at its highest level since early January.
The dollar fell 0.5% against major currencies to trade at 102.62 – an almost five-month low.
“The fear of a recession in the US means that the market is no longer looking for an orderly adjustment of Fed policy towards some kind of neutral interest rate – say close to 3.25%. No, the fear of a recession now brings with it the idea of stimulative monetary policy,” said Chris Turner, head of FX strategy at ING.
“It is no surprise that low-yield currencies are now on the rise as the rest of the world begins to focus on their low interest rates.”
The yen has risen 14% against the dollar over the past three weeks, driven in part by the Bank of Japan’s 15 basis point rate hike last week to 0.25%. It also announced a plan to halve its monthly bond purchases over the next three weeks. a few years.
Barclays analysts said the Japanese currency was the most overbought among the G10 major currencies, and therefore “the bar for further near-term outperformance appears high.”
The Swiss franc, another popular financing currency, rose more than 1% to 0.84825 against the dollar. The franc, a traditional safe haven, also traded at its highest level in seven months.
High-yield currencies such as the Indian rupee and the Mexican peso tumbled, while currencies hitherto used to finance investments, such as the yen and yen, rose sharply.
Treasury yields have fallen quite sharply since last week, when the Federal Reserve kept policy rates within the current range of 5.25% to 5.50%, while Chairman Jerome Powell opened up the possibility of a rate cut in September.
But on Friday, after data showed unemployment had risen, sparking talk that the U.S. economy could be heading for a recession, expectations for rate cuts increased.
Ten-year U.S. Treasury yields fell nearly 40 basis points last week, the biggest weekly drop since March 2020, and were last at 3.75%.
According to LSEG data, Fed fund futures reflected traders estimating a nearly 99% chance of a 50 basis point cut at the central bank’s September meeting. Futures imply a cut of 127 basis points this year.
The euro rose 0.2% to $1.0954, despite rising expectations of interest rate cuts by the European Central Bank (ECB). Traders now see a rate cut of more than 90 basis points by the ECB this year, compared to 50 basis points early last week.
Meanwhile, markets are also dealing with the risk of military escalation in the Middle East following the latest developments in the war between Israel and Hamas in Gaza, which has pushed oil prices to their lowest levels since January.
The US military is deploying more troops in the Middle East and Europe after threats from Iran and its allies Hamas and Hezbollah in response to the killing of Hamas leader Ismail Haniyeh in Tehran last week.
