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Dollar pressured by soft jobs data and Fed rate cut speculation

May 10, 2024

Key points

  • The U.S. dollar declined against major currencies following softer jobs data, hinting at potential Federal Reserve rate cuts.
  • Recent interventions in currency markets, particularly concerning the Japanese yen, and upcoming economic indicators could influence short-term trading strategies.

The U.S. dollar exhibited weakness in early trading in Asia this Friday, continuing its decline from the previous night against the euro and sterling.

This movement comes as new data points to a slowing labor market in the U.S., thereby increasing the likelihood of the Federal Reserve cutting interest rates later this year.

US dollar declines against the yen

Picture: Dollar weakening against the yen as seen on VT Markets app.

The dollar traded lower at 155.39 yen against the Japanese yen, a drop from the previous session’s high of 155.95. The euro benefited from a modest gain of 0.3%, standing at $1.0782. Meanwhile, the dollar index, which compares the dollar to a group of major currencies, remained steady at 105.25.

Market analysts observed a mild rally in U.S. Treasuries and commodities, supporting a rise in most major currencies. The yen, despite its low yields, and the sterling, recently weakened by a dovish Bank of England review, both saw improvements.

Tokyo’s intervention speculation

Speculation around potential interventions by Tokyo to support the yen continues, especially after recent efforts estimated at around $60 billion to strengthen the currency. Despite these interventions, market sentiment suggests a re-testing of recent lows might be imminent, with potential fluctuations around the 155 level for the dollar against the yen.

U.S. Labour Data, Bank of England’s Dovish Stance

Sterling saw a modest recovery to $1.2525 after initial losses, influenced by U.S. labor data and a dovish stance from the Bank of England, which maintained its benchmark interest rate at 5.25% but signaled openness to future cuts.

U.S. Treasury yields showed a decline, with the 10-year yield dropping to 4.46% from 4.52%, reflecting market relief after the successful absorption of $125 billion in new note and bond offerings.

Also read: Rate cut rumors keep forex markets on edge 

Today’s market movements and upcoming economic reports will be critical for investors and traders trying to gauge the direction of interest rates and the broader economic landscape in the coming months.

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