US dollar rally pauses for breath in reprieve for yen, euro

THE yen and euro received some much-needed relief on Thursday (Oct 5) as the US dollar and US Treasury yields both stalled after cooler-than-expected US 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 US dollar index, which tracks the greenback against six other currencies including the euro and yen, edged 0.07 per cent lower to 106.68 after Wednesday’s data showed US private payrolls increased far less than expected in September.

Although analysts said more evidence was needed to be sure of 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 per cent chance the central bank will keep its rates steady. On Tuesday, they were pricing in a 28.2 per cent chance of another hike, CME Group data indicated.

Longer-dated US Treasury yields eased from 16-year highs, while the yen, which tends to be sensitive to US yields, traded at 148.92, up 0.13 per cent against the US dollar. It hit 150.165 on Tuesday, its weakest since October 2022.

“The fact that the negative (US) data made more of an impression on market participants may be due to...the fact that euro/dollar levels below US$1.05 and 10-year T-note yields above 4.80 per cent 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 per cent at US$1.0518, having fallen on Tuesday to its lowest level this year at US$1.0448. The single currency has dropped more than 14 per cent against the US 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 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 (BOJ) money market data indicated on Thursday that Japanese authorities most likely did not 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.

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Besides lower US 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 US dollar ahead, a Reuters poll showed.

Elsewhere, sterling flattened against the US dollar to US$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. REUTERS