SINGAPORE: The US dollar remained stable on Monday despite a disappointing US jobs report. This report increased expectations that the Federal Reserve might cut interest rates twice this year. Meanwhile, the Japanese Yen weakened slightly at the start of the week.
The Yen had its strongest weekly gain in over a year last week. This followed suspected interventions by the Japanese government to weaken the dollar and strengthen the Yen. These interventions aimed to prevent the Yen from reaching a new 34-year low.
Early Monday trading saw the Yen lose 0.43% to 153.62 per dollar. This comes after the dollar weakened further due to the jobs data.
Financial markets in mainland China were closed for most of last week. However, the offshore Yuan strengthened alongside the broad decline of the dollar. This decline followed signs of a cooling US jobs market, comments from Fed Chair Jerome Powell suggesting the Fed might ease rates, and interventions by Japan to strengthen the Yen.
Analysts believe that even though Japan spent a significant amount to support the Yen last week, it might only be a temporary solution. The market still sees the Yen as a weak currency.
Speculative traders are still heavily betting against the Yen. However, their bets have decreased slightly compared to recent highs.
While Japan can likely intervene more, the overall economic situation remains unfavorable for the Yen according to Goldman Sachs. They believe that interventions can only be successful to a limited extent.
The weak jobs report in the US showed slower-than-expected job growth and wage increases. This data has increased optimism that the Fed might be able to slow down the economy without causing a recession.
Financial markets are now expecting the Fed to cut interest rates by 0.45% this year, with a cut in November almost certain.
The Fed kept interest rates unchanged as expected at their recent meeting. However, they indicated that they are still considering future rate cuts, even if they might happen later than initially anticipated.
Analysts at Citi believe that inflation might stay closer to 3% than the Fed’s target of 2% this year. However, they see some signs of a cool-down which could be enough for the Fed to justify a rate cut this summer. If the recent slowdown in job growth continues, the case for rate cuts becomes even stronger.
The dollar index, which measures the value of the US dollar against other major currencies, remained stable at around 105. The Euro and British Pound also saw small gains against the dollar.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. The currency market is subject to rapid change and unforeseen factors. Before making any investment decisions, you should consult with a qualified financial professional who can advise you based on your individual circumstances.
