Yen Gains Ground as Dollar Weakened by Payrolls Report

Thursday witnessed the yen strengthening while the dollar faltered, as U.S. Treasury yields cooled off in response to mixed economic data from the United States. In light of these signals, investors tempered their expectations for further interest rate hikes by the Federal Reserve this year. The dollar index, which measures the greenback against six major currencies, remained near its overnight levels, settling at around 106.55 after falling from its nearly 11-month peak.

The dollar’s decline was primarily attributed to a smaller-than-expected increase in U.S. private payrolls for September, as reported by the ADP National Employment Report on Wednesday. However, analysts have advised caution, emphasizing the need for more data to draw definitive conclusions regarding the labor market’s cooling. Subsequent to this report, longer-term U.S. Treasury yields, which had reached 16-year highs, declined and remained lower during Asian trading hours.

Bank of Singapore currency strategist Moh Siong Sim noted signs of the U.S. labor market cooling further but stressed the importance of Friday’s non-farm payrolls data for a comprehensive assessment. He also pointed out that although U.S. growth has been slowing, it’s doing so at a slower rate than anticipated.

The dollar/yen pair, known for its sensitivity to U.S. yields, was last observed trading at around 148.53, down approximately 0.4%. Earlier in the week, the yen had dipped to 150.165, its lowest level since October 2022, sparking speculation about potential Japanese authorities’ intervention to support the currency. However, data from the Bank of Japan’s money market showed no indications of such actions.

Japanese Finance Minister Shunichi Suzuki declined to comment on Tokyo’s potential intervention, reiterating the importance of stable currency rates reflecting fundamentals. Kyle Rodda, a markets analyst at Capital.com, noted that the yen also benefited from an overnight drop in oil prices but cautioned that this could be a “short-term reprieve.”

On Thursday, oil prices partially rebounded following an OPEC+ panel’s decision to maintain output cuts, aiming to keep supply tight and reversing some of the previous session’s significant losses. Rodda suggested that while the Japanese Finance Ministry would seek to defend the 150-level for the yen, any currency intervention would likely have minimal impact.

Meanwhile, the euro edged up by 0.15% to $1.05205, remaining above the week’s low of $1.0448. In a Reuters poll of 20 analysts, the median prediction for the euro’s lowest point this month was $1.04, with just one respondent forecasting parity. The British pound stabilized at $1.2158, recovering from Wednesday’s low of $1.20385 per dollar. The Australian dollar and the New Zealand dollar also made gains, trading at $0.63655 and $0.59445 against the greenback, respectively.