Dollar Takes a Hit After U.S. Private Payrolls Report; Yen and Euro Benefit

LONDON/TOKYO: The U.S. dollar faced a setback on Thursday, providing a breathing space for the yen and euro, as it reacted to slowed growth in U.S. private payrolls. This resulted in investors second-guessing the Federal Reserve’s next move regarding interest rates for the year.

Having reached an 11-month peak earlier in the week, the dollar index settled at 106.75. This adjustment occurred post the release of data on Wednesday that revealed an unexpected dip in the growth of U.S. private payrolls for the month of September.

Financial analysts caution that a thorough assessment is needed to gauge the exact rate of the labor market’s deceleration. Reflecting this sentiment, money markets scaled back their expectations of a Fed rate increase in November. Current projections, as per CME Group data, lean towards an 80% probability of the rates remaining unchanged, a significant shift from the previous 28.2% anticipation of another rate hike.

Yields from long-term U.S. Treasuries saw a decline from their 16-year zenith. Concurrently, the yen, known for its sensitivity to U.S. yields, recorded a 0.1% appreciation against the dollar, hovering around 149. This comes after its recent low of 150.165 on Tuesday, its poorest performance since October of the preceding year.

Ulrich Leuchtmann, Commerzbank’s head of FX and commodity research, remarked that the significant impact of the unfavorable U.S. data could stem from the market’s ambitious targets for the euro/dollar and 10-year T-note yields.

The euro displayed a modest rise of 0.06%, settling at $1.0511. This occurs in the wake of its weakest performance this year, dropping to $1.0448 on Tuesday. In the last quarter, the euro has depreciated by over 14% relative to the dollar.

Speculations were rife earlier this week about possible interventions by the Japanese authorities to bolster the yen when it crossed the 150 threshold. However, data from the Bank of Japan’s money market on Wednesday negated these speculations. Finance Minister Shunichi Suzuki, while discussing the issue, emphasized the importance of currency rates reflecting economic fundamentals and opted not to comment on Tokyo’s potential interventions.

Kyle Rodda, a markets analyst at Capital.com, noted the yen’s gain from declining U.S. Treasury yields and the recent dip in oil prices, though he believes it might be a temporary relief. He highlighted that the 150 benchmark for the dollar/yen will likely be rigorously defended by the Japanese Finance Ministry. However, he was skeptical about the long-term effectiveness of any intervention.

The oil market, on the other hand, witnessed a marginal recovery in prices as OPEC+ decided to sustain the current oil output cuts, aiming to tighten supply. This decision came in the wake of significant losses in the prior trading session.