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Dollar Retreat Boosts Yen and Euro Ahead of Key US Jobs Data

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Yen and Euro Gain Relief as Dollar Retreats Ahead of Key US Jobs Data

The yen and euro experienced a much-needed relief on Thursday as the dollar and Treasury yields retreated. This comes ahead of the release of key U.S. jobs data, which could potentially determine whether the Federal Reserve will hike interest rates again next month.

After reaching an 11-month high earlier in the week, the dollar index slipped 0.1% to 106.65. Investors are now turning their attention to the release of the U.S. Labor Department’s jobs report for September, due on Friday.

Economists surveyed in a Reuters poll predicted a gain of 170,000 jobs, down from 187,000 in the previous month. The unemployment rate is expected to have slightly dipped to 3.7% from 3.8%. Wednesday’s data revealed that U.S. private payrolls increased less than anticipated last month.

While analysts believe it is necessary to gather more evidence to determine the speed at which the labor market is cooling, money markets have reduced their bets for a Fed rate hike in November. According to CME’s FedWatch tool, there is now a 76% chance the U.S. central bank will maintain its benchmark overnight interest rate. This figure is up from 55% a month ago.

Longer-term U.S. Treasury yields have also moved away from 16-year highs. Additionally, the yen, which is typically sensitive to U.S. yields, is currently trading at 148.60 per U.S. dollar, marking a 0.3% increase. On Tuesday, it reached its weakest level since October 2022 at 150.165.

Amo Sahota, director at consulting firm Klarity FX in San Francisco, stated, “The fall in yields doesn’t change the trajectory of what we have been going through in the currency market. I think we have to see a much more significant decline in U.S. yields to really curb some of the dollar intensity.”

Meanwhile, the euro rose 0.2% to $1.0526. Earlier in the week, it fell to its lowest level of the year at $1.0448. Peter Kazimir, a policymaker for the European Central Bank (ECB), suggested that the ECB’s rate hike last month was likely the last of its current tightening cycle. However, he did note that the decision would depend on future data.

Speculation arose earlier this week regarding intervention to support the yen after it surpassed the 150-per-dollar level. However, Bank of Japan money market data released on Thursday indicated that Japanese authorities are unlikely to have intervened. Japan’s Finance Minister, Shunichi Suzuki, declined to comment on whether Tokyo had stepped in, but reiterated the importance of stable currency rates reflecting fundamentals.

Aside from the decrease in U.S. Treasury yields, the yen also benefited from a drop in oil prices. Yet, market participants anticipate that this relief will be short-lived. UniCredit strategists emphasized that the risks of a Bank of Japan (BOJ) intervention persist, given the current yen levels.

A Reuters poll revealed that strategists are forecasting a weaker dollar ahead.

In other currency news, sterling rose 0.2% against the dollar to $1.2157. This follows a drop on Wednesday to its lowest level since March. Bank of England Deputy Governor Ben Broadbent expressed uncertainty as to whether interest rates needed to be increased further.

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