Key facts
- The U.S. dollar index fell to a two-week low as bets on a Federal Reserve rate hike diminished.
- The Japanese yen hovered near a 40-year low, raising concerns about potential intervention.
- The euro and sterling saw gains against the dollar.
- June's U.S. payrolls report showed slower job growth, reducing expectations for further Fed tightening.
- Traders are wary of Japanese authorities intervening to support the yen.
- Minutes from the Fed's June meeting are anticipated for insights into the rate outlook.
The U.S. dollar traded near a two-week low as market expectations for further Federal Reserve rate hikes diminished following a slowdown in job growth. The dollar index was at 100.9, while the euro and sterling saw gains against the greenback.
The Japanese yen remained a focal point, hovering near a 40-year low of 161.57 per dollar. Traders are on edge due to the possibility of official intervention, although analysts suggest such actions may only provide temporary support without fundamental shifts. The yen briefly surged on Thursday, indicating market nervousness.
The U.S. dollar experienced its largest weekly decline since April after the June payrolls report indicated a significant slowdown in job creation. However, some strategists believe the falling unemployment rate still points to a tight labor market, potentially keeping Fed tightening expectations alive. OCBC strategists maintained a constructive outlook for the dollar, forecasting moderate appreciation in the latter half of the year.
Investor focus this week is on the minutes from the Fed's June meeting for further clues on the interest rate outlook. Strategists at Commonwealth Bank of Australia noted that the minutes might offer less insight than usual, referencing former Fed Chair Kevin Warsh's views on excessive guidance. Dwindling oil prices have also contributed to easing inflationary concerns.
Market participants are concerned that Japanese officials might abandon their usual practice of telegraphing risks, opting instead for a more targeted approach to deter speculators betting against the yen. Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the market is aware of intervention risks, with signs in the options market suggesting some large capital pools are hedging against potential intervention.