New York, July 7 (BNA): The dollar fell on Friday after signs the labor market was less resilient in the United States dampened expectations for how long the Federal Reserve would keep interest rates higher, but the yen jumped on concerns about the 10-year Treasury yield. rose above 4%.
The US economy added the fewest jobs in 2-1/2 years in June, the Labor Department said in an employment report that also showed that 110,000 fewer jobs were created in April and May than previously reported.
The jump in the number of people working part-time for economic reasons also points to a weakening labor market, but the pace of job growth remains strong and with inflation still twice as high as the Fed’s target rate, a rate hike is likely this month, Reuters reported.
The yen rose 1.33% to 142.15, a two-week high against the greenback, as a rise in the 10-year Treasury yield above 4% added to concerns that Japan might intervene in currency markets, said Joe Manimbo, a senior market analyst.
“Risk aversion being a dominant theme this week, coupled with USDJPY hanging around such high levels, has the market worried that Japan might come closer to jumping in again and stepping in to support the yen,” he said.
“We remain at a distance of 145, which appears to be the line in the sand, with Treasury yields – the 10-year Treasury yields in particular holding above 4% – a sign that any bearish moves in dollar-yen could prove very limited.” .
The dollar index fell 0.815% to 102.240, while the euro rose 0.76% to 1.0969 dollars.
The dollar and other major currencies, with the exception of the Japanese yen, are in a narrow trading range as most central banks engage in monetary tightening to fight inflation.
But the ECB is just as hawkish, if not somewhat more so,” said Thierry Weizmann, global and currency analyst at Macquarie in New York.
“There is a certain horse race going on here and that creates a certain tension that keeps the euro in this range,” he said.
Strong US economic data released on Thursday pushed short-term Treasury yields to their highest levels since 2007, reflecting the view that the Fed is likely to raise interest rates by 25 basis points when it wraps up its two-day policy meeting on July 26.
After the jobs data, futures indicated an 88.8% probability that the Fed will rise in three weeks.
Earlier, Japan’s Ministry of Labor reported that regular wages recorded their largest annual increase in May since early 1995, reinforcing the view that the Bank of Japan (BOJ) will have to adjust its ultra-loose monetary policy sooner rather than later.
“Stronger wage negotiations are starting to flow, which is what the Bank of Japan wants. They have said very clearly that if they see evidence of stronger and more sustainable wage growth that could give them more confidence that they can beat their inflation target,” Hardman, a strategist, told me. in mufg.
Adding a tailwind to the yen’s rally, Hardman said, was squaring positions among speculators who built large bearish positions.
Weekly data from the US regulator shows that speculators are holding short positions in the yen worth $9.793 billion, the largest since May 2022, nearly doubling in size in the past three months alone.
The yen held just below the 145 level – prompting the Bank of Japan’s first intervention in decades last fall – for about two weeks and the authorities made clear they were concerned about the currency’s weakness.
The Australian dollar rose 0.8% to $0.6681, but still struggled with weak Chinese economic data and broad risk aversion. The offshore yuan fell 0.4 percent to 7.2257.
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