USD\/JPY fell 0.92% on Thursday to about 161.05 after a weak US employment report pressured the US Dollar. The BLS said Nonfarm Payrolls rose by 57K in June versus forecasts of 110K, while May was revised to 129K from 172K and April to 148K from 179K, a combined downward revision of 74K jobs. Even so, the Unemployment Rate edged down to 4.2% from 4.3%, the Labour Force Participation Rate slipped to 61.5% from 61.8%, and Average Hourly Earnings accelerated to 3.5%, matching expectations.<\/p>\n\n
Attention remained on the payroll miss, alongside market pricing for a less hawkish Fed stance. The yen also drew support from intervention risk: Reuters reported the MoF declined to comment on the currency\u2019s recent moves, while expectations persist that the BoJ could raise rates again before year-end. In the day\u2019s broader moves, the yen was strongest against the dollar, with JPY up 0.97% versus USD; USD fell 0.55% against EUR and 0.67% against GBP, and the euro gained 0.55% against the dollar.<\/p>\n\n
With US job growth slowing so dramatically, we see the Federal Reserve’s path for the rest of the year changing. We must now position for a weaker US dollar, as expectations for rate cuts will intensify. The CME FedWatch Tool now indicates a greater than 60% probability of a rate cut by the September meeting, a sharp increase from just 20% a week ago.<\/p>\n\n
The move in USD\/JPY below 161.05 is driven by both dollar weakness and the constant threat of Japanese intervention. Historically, Japanese authorities have intervened near these levels, as seen in 2024, making direct short positions on the pair compelling. We are looking at buying put options on USD\/JPY to capitalize on a potential sharp drop while limiting our risk.<\/p>\n\n
This jobs report, combined with recent ISM Manufacturing data that fell to 48.7, signals a broader economic slowdown. This increases the likelihood of higher volatility across all major currency pairs tied to the US dollar. Therefore, we believe purchasing options that benefit from price swings, such as straddles on EUR\/USD, is a prudent strategy for the weeks ahead.<\/p>\n\n
The decline in the labor force participation rate to 61.5% is particularly concerning and suggests underlying weakness that the headline unemployment rate doesn’t capture. This reinforces our bearish outlook on the dollar against currencies with more hawkish central banks, like the Euro. We are considering put spreads on the Invesco DB US Dollar Index Bullish Fund (UUP) as an efficient way to gain short exposure.<\/p>\n\n
Beyond currencies, the expectation of a more dovish Fed will directly impact interest rate markets. We anticipate that yields on US Treasuries will continue to decline as rate cut bets increase. Trading SOFR futures will be a direct way to position for this, as their prices will rise as the market prices in lower future interest rates.<\/p>\n\n\n\n