The yen and euro received some much needed relief on Thursday as the dollar and U.S. Treasury yields both stalled after cooler-than-expected U.S. private payrolls data, leading investors to reduce bets the Federal Reserve will hike rates again this year.
After touching an 11-month high earlier this week, the dollar index , which tracks the greenback against six other currencies including the euro and yen, edged 0.07% lower to 106.68 after Wednesday’s data showed U.S. private payrolls increased far less than expected in September.
Although analysts said more evidence was needed to be sure how fast the labour market is cooling, money markets cut their bets for a Fed rate hike in November, and are now seeing an almost 80% chance the central bank will keep its rates steady. On Tuesday, they were pricing in a 28.2% chance of another hike, according to CME Group data.
Longer dated U.S. Treasury yields eased from 16-year highs, while the yen , which tends to be sensitive to U.S. yields, traded at 148.92, up 0.13% against the dollar. It hit 150.165 on Tuesday, its weakest since October 2022.
“The fact that the negative (U.S.) data made more of an impression on market participants may be due to…the fact that euro/dollar levels below $1.05 and 10-year T-note yields above 4.80% simply were quite ambitious levels, which required a considerable amount of data to support them,” said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.
The euro was up 0.13% at $1.0518, having fallen on Tuesday to its lowest level this year at $1.0448. The single currency has dropped more than 14% against the dollar over the past three months.
European Central Bank policymaker Peter Kazimir said that the rate hike last month was likely the last although the bank cannot be certain until seeing data available at meetings in December and March.
INTERVENTION WATCH
The yen’s sharp recovery after breaching the 150-line sparked speculation earlier this week of intervention to support the currency, but Bank of Japan money market data indicated on Thursday that most likely Japanese authorities didn’t intervene.
Finance Minister Shunichi Suzuki on Wednesday declined to comment on whether Tokyo had stepped in, and repeated that currency rates must move stably, reflecting fundamentals.
Besides lower U.S. Treasury yields, the yen also drew support from a drop in oil prices on Thursday, though markets are expecting the reprieve to be short lived.
UniCredit strategists said risks of a BoJ intervention continue to linger given current yen levels.
Oil prices fell again on Thursday, adding to big losses on Wednesday, as demand outlook remained uncertain.
Strategists forecast a weaker dollar ahead, a Reuters poll showed.
Elsewhere, sterling flattened against the dollar to $1.2137, after falling on Wednesday to its lowest since March.
Bank of England Deputy Governor Ben Broadbent said that it was an open question whether interest rates increase further.
