Author: Vidya Ranganathan
SINGAPORE (Reuters) – The Japanese yen hit its highest level against the dollar since January on Monday, as markets extended moves that began last week after frail U.S. jobs data sparked recession fears and expectations of deeper interest rate cuts by the Federal Reserve.
Friday’s jobs data, which came on the heels of a series of frail earnings reports from substantial technology companies and heightened concerns about China’s economy, led to a global sell-off in stock markets, oil and high-yielding currencies as investors sought the safety of cash.
Selling continued on Monday, with U.S. Treasury yields continuing to fall, stock indexes in the red, bitcoin falling and the dollar depreciating mostly against the yen.
High-yielding currencies such as the Indian rupee and Mexican peso fell in value, while currencies that were traditionally used to fund investments, such as the yen and the , gained strongly.
The carry-fund favorite, the yen, was trading at 143, up 2.3% against the dollar and at levels last seen on Jan. 2. The yen rose to 142.20.
The Swiss franc, another popular financial currency, gained more than 1% to 0.8488 per dollar.
The euro rose 0.2% to $1.0937, down 0.4% to $102.72, while the Australian dollar settled at $0.6488, down 0.36%.
“The market has priced in a Fed rate cut at its September meeting, which I think will be too much,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“The U.S. economy is showing signs of slowing, but it is not as bad as the market is pricing in.”
However, short-term momentum could sustain the sell-off, with technical data also pointing to further gains for the yen, he added.
Treasury yields have been falling quite sharply since last week, when the Federal Reserve kept the interest rate in its current range of 5.25% to 5.50% and Chairman Jerome Powell hinted at the possibility of a rate cut in September.
But expectations for interest rate cuts deepened on Friday as data showed the unemployment rate rose, sparking rumors that the U.S. economy was headed toward a recession.
The yield on the 10-year U.S. Treasury note fell nearly 40 basis points last week, its biggest weekly decline since March 2020, and was last at 3.75%.
Fed funds futures reflected traders pricing in a better than 80% chance of a 50-basis-point cut at the central bank’s September meeting, according to CME FedWatch. The futures imply a 155-basis-point cut this year, with a similar amount in 2025.
The yen has risen 14% against the dollar over the past three weeks, driven in part by a huge 15 basis point interest rate hike by the Bank of Japan last week to 0.25%, as well as the bank announcing a plan to halve its monthly bond purchases over the next few years.
Barclays analysts said the Japanese currency was the most overbought of the G10 majors, meaning “the bar for even better performance in the near term seems high.”
A two-day sell-off in stock markets behind schedule last week saw the technology company pull back 10% from its record high reached in early 2022. Shares also fell in Europe and Asia, with the index losing 24% in three days, putting it in bear territory.
The closely watched U.S. two- to 10-year Treasury yield curve narrowed its inversion. Late last week, it was at its least inverted since July 2022, reflecting both recession fears and expectations of a edged easing in short-term yields.
Meanwhile, markets are also grappling with the risk of military escalation in the Middle East after recent developments in the war between Israel and Hamas in the Gaza Strip sent oil prices to their lowest since January.
The U.S. military is sending more forces to the Middle East and Europe in response to threats by Iran and its allies, Hamas and Hezbollah, to kill Hamas leader Ismael Haniyeh two days ago in Tehran.
