Currency moves reflect economic uncertainty
The dollar held slight gains against the yen on Tuesday after reaching a new nine and a half month high, and it also moved marginally higher against the euro. Traders focused on Japan’s shifting fiscal stance while they waited for fresh US economic data that could influence the Federal Reserve’s next decisions. Figures from the Cleveland Fed showed that 39000 Americans received advance layoff notices in October, while ADP Research reported that employers cut an average of 2500 jobs a week during the four weeks ending on November 1.
These developments added to concerns about a weakening US economy and contributed to diminishing expectations for near term rate cuts. Market analysts said the uncertainty created by gaps in official data has left policymakers in a difficult position. According to Michael Boutros of StoneX, there is little evidence to justify an immediate rate cut, even as investors grow uneasy about the outlook.
Pressure mounts on the yen as policy debate intensifies
The dollar index rose to 99.55, extending a mild recovery after several losing sessions. The yen weakened to 155.58 per dollar during the day and briefly reached 155.73 in New York trading, its lowest level since early February. While Bank of Japan Governor Kazuo Ueda has suggested that interest rates could rise as soon as next month, Prime Minister Sanae Takaichi has pushed back, arguing that monetary policy should continue supporting the government’s efforts to reflate the economy.
This contrast has unsettled markets. Analysts at Barclays recommended staying long on the dollar against the yen, citing fiscal policies that resemble earlier stimulus programs. Traders also noted that talk of currency intervention has increased as authorities express concern about rapid moves. Japanese Finance Minister Satsuki Katayama repeated those concerns on Tuesday, while reports of a potential stimulus package worth about 23 trillion yen added to pressure on the country’s bond markets.
Investors look to upcoming US jobs report
Yields on Japanese government bonds continued to steepen as markets assessed the likely size of the new spending measures. Longer term yields reached levels not seen in more than two decades. The divergent paths of the US and Japanese economies added complexity to a market already focused on the upcoming US September jobs report. Analysts said the data could influence expectations for the Federal Reserve’s next meeting, especially as officials continue to debate the strength of the labor market.
Fed Governor Christopher Waller and Vice Chair Philip Jefferson both signaled the need for caution, with ongoing policy disagreements highlighting uncertainty inside the central bank. Richmond Fed President Thomas Barkin added that upcoming data and community insights may help clarify the direction of the economy. Money markets now assign a roughly 51 percent chance of a 25 basis point rate cut in December, down from about 60 percent last week. The euro slipped to 1.1584 dollars and the Swiss franc traded near 0.7990 against the dollar as investors remained cautious.
