10-7-2023 (SINGAPORE) The US dollar started the week on the back foot following underwhelming US jobs data, which lowered market expectations of further interest rate hikes by the Federal Reserve. Meanwhile, market attention in Asia turned to the release of China’s inflation data.
On Friday, data revealed that the US economy added 209,000 jobs last month, the smallest increase in two and a half years. This marked the first time in 15 months that payrolls fell short of expectations. Consequently, the dollar experienced a nearly 1% decline against a basket of currencies, while the yen and sterling surged.
In early Asian trading on Monday, the Japanese yen was valued at 142.30 per dollar, having jumped 1.4% on Friday in response to the dollar’s decline and a drop in US Treasury yields. The dollar/yen pair is particularly sensitive to US yields as Japanese interest rates remain close to zero.
Chris Weston, Head of Research at Pepperstone, noted that the market had high expectations leading up to the payrolls data. As a result, investors scaled back their dollar positions. Weston also observed a significant influx of yen as traders looked to cover their short positions.
Similarly, the British pound remained firm, trading near a one-year peak of $1.2850 reached on Friday. It last traded at $1.2829 as expectations grow that persistently high inflation in the UK will compel the Bank of England to raise interest rates to 6.5% by December, the highest level in 25 years.
The euro saw a slight dip to $1.0958, retracing some of its 0.7% gain from Friday. Meanwhile, the US dollar index rose 0.09% to 102.38 but remained close to Friday’s two-week low of 102.22.
Weston expressed caution regarding the sustained movement of the US dollar, highlighting doubts about the market’s confidence in the Federal Reserve’s position in the monetary tightening cycle.
In Asia, attention turned to China’s consumer price data set to be released later on Monday. Expectations are for inflation to have remained steady at 0.2% in June, potentially bolstering investor hopes for additional support measures from Beijing.
The Australian dollar, often used as a liquid proxy for the yuan, experienced a 0.14% decline, reaching $0.6683. Meanwhile, the New Zealand dollar fell 0.16% to $0.6199.
MUFG analysts anticipate low consumer price inflation due to persistently weak demand and further deflation in producer prices. They expect the People’s Bank of China to implement more policy measures to suppress expectations of yuan depreciation, which should provide support for the currency going forward.
The offshore yuan, which has faced pressure in recent months due to China’s faltering economic recovery, experienced a marginal decline, reaching 7.2341 per dollar.
