The release of the delayed U.S. nonfarm payrolls report on Thursday painted a mixed picture of the country’s labor market, with employment growth accelerating in September but the unemployment rate rising to 4.4%, the highest level in four years.That reinforced views that the Fed is likely to hold off on rate cuts at its December meeting as policymakers continue to navigate the economic fog caused by the U.S. government shutdown.
Against the dollar, the euro was near a two-week low and last bought at $1.1528, on track for a weekly decline of 0.8%.
Sterling rose 0.11% to $1.3084 but was set to lose 0.7% this week, while investors also eagerly awaited the upcoming British budget, which will be a major test for the country’s currency and bond markets. The dollar index, which measures the greenback against a basket of peers, flirted with a 5.5-month peak and was last at 100.20. It was on track for a weekly gain of 0.9%, its best performance in more than a month. “September’s shutdown-delayed jobs report provided no clarity on what the FOMC will do at its much-discussed meeting in December,” Wells Fargo economists said in a note.
“We continue to believe that what the Fed should do is cut the Fed funds rate by 25 basis points… That said, what the Fed will do is an entirely separate debate,” the economists said, adding that their call for a rate cut in December was “close” and that a hold “would not surprise us at this point.”
Markets are now pricing in just a 27% chance that the Fed will ease interest rates next month.
In other currencies, the Australian dollar rose 0.09% to $0.6446, after falling 0.6% overnight on broad risk offsetting in markets.
The New Zealand dollar rose 0.11% to $0.5588 after also losing 0.4% on Thursday.
THE TUMBLING YEN RAISES INTERVENTION THREAT
Much of the focus in the currency market this week has been on a falling yen, which has hit new lows as investors worry about the country’s deteriorating fiscal position due to Prime Minister Sanae Takaichi’s generous stimulus package.
The Cabinet plans to approve the package worth about 21.3 trillion yen ($135.29 billion) later on Friday.
“The problem at its core is that politicians are making promises to voters that defy economic reality,” said James Athey, fixed income portfolio manager at Marlborough in London, referring to this week’s sharp sell-off in Japanese bonds and the currency. [JP/]
The yen languished near a 10-month low and was last at 157.33 per dollar after hitting a low of 157.90 in the previous session. The index is expected to lose almost 2% this week, its worst performance in more than a month.
“The elephant in the room now is intervention risks,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho. “Interventions are likely to be opportunistic and short-lived. Essentially they are speed bumps, not barricades.”
Tokyo last spent 5.53 trillion yen, or nearly $37 billion, on currency market interventions in July 2024 to lift the yen from a 38-year low.
In addition, data on Friday showed Japanese consumer prices rose 3.0% in October from a year earlier, staying above the central bank’s 2% target and keeping alive expectations of a near-term rate hike.
($1 = 157.4400 yen)
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