The U.S. dollar is poised to experience its most significant weekly decline in 12 weeks following a lackluster jobs report released on Thursday, which tempered market expectations for an imminent interest rate hike by the Federal Reserve. This development has offered some relief to the Japanese yen, as broad dollar weakness contributed to a boost in other major currencies.
As the euro climbed to $1.1440, it reached a nearly two-week high, reflecting a 0.5% increase for the week. The British pound also gained ground, rising to $1.3352, marking a 1.1% weekly increase—the strongest performance in nearly three months. The yen, which momentarily recovered from a 40-year low of 162.84, traded at less than 161 per dollar and was last noted at 161.25. However, concerns persist regarding potential government intervention in currency markets; a sudden rise in the yen’s value had sparked such anxieties just the day before.
The dollar’s decline can be attributed to a slowdown in job growth for June and subsequent downward revisions of payroll gains for earlier months. This data caused traders to reduce their predictions of a near-term interest rate increase by the Fed, with current expectations indicating about a 45% likelihood of a hike in September, as per the CME FedWatch tool. It should be noted that U.S. Treasury markets were closed for Independence Day.
Karl Steiner, head of analysis at SEB, commented on the situation, expressing a lack of expectations for a rate increase, which aligns with the outlook of a weaker dollar. He indicated a possibility for further declines ahead. The dollar index, a measure of the currency against a basket including the euro and yen, was approximately 0.2% lower at 100.83. After a 0.5% drop on Thursday, it totaled a 0.5% decline for the week—the largest drop since early April.
Despite the yen’s recent recovery, investors remain vigilant for any intervention from Japanese authorities, particularly during this holiday-thinned trading session. Steiner highlighted the importance of keeping a lookout for such interventions, noting that historically, these actions are taken when market liquidity is lower.
Japan’s Finance Minister Satsuki Katayama issued a statement indicating that the Tokyo government is in regular communication with Washington regarding foreign exchange issues and is prepared to take action to support the yen if necessary. Meanwhile, Chief Cabinet Secretary Minoru Kihara conveyed that officials are closely monitoring market movements with a heightened sense of urgency.
Market participants are wary that Japanese officials might be shifting away from their traditional communication strategies and instead adopting a more direct approach to counter speculation and increase the costs of betting against the yen. Analyst Tony Sycamore remarked on the significance of recent dollar-yen peaks, suggesting that their longevity will be contingent upon forthcoming economic data and developments in the Japanese bond market.
