The Japanese yen fell to its lowest level in nearly two months and other major currencies also suffered losses early on Monday, as the dollar extended a rally sparked by Friday’s strong U.S. jobs data and the escalation of conflict in the Middle East.
The yen fell slightly to 149.10, its weakest level since August 16. This drop comes on top of that of more than 4% recorded last week, the largest weekly percentage drop since the start of 2009.
The dollar’s gains followed a U.S. jobs report that showed the biggest jobs gain in six months in September, a decline in the unemployment rate and solid wage increases, all pointing to a resilient economy and forcing markets to discount prices for Federal Reserve rate cuts.
“With rate cuts still being the default, and when combined with optimistic earnings forecasts and China being very active on liquidity and taxation, the bullishness of stocks and the US dollar are getting a boost,” said Chris Weston, head of research at Australian online broker Pepperstone.
“While geopolitical news and the possibility of an energy shock remain a constant threat to sentiment, those willing to take risks have not heard of any significant market movement over the weekend and “are heading into the new trading week feeling pretty good about the prospect of another rise.”
In the Middle East, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on Sunday, marking the first anniversary of the Oct. 7 attacks that sparked the war. Israel’s defense minister also said all options were open for retaliation against arch-enemy Iran.
Brent crude oil futures were down 0.7% on Monday, but rose more than 8% last week, marking the largest weekly gain since the start of January 2023.
The dollar index against its main rivals remained stable. It rose 0.5% on Friday to its highest level in seven weeks, recording a rise of more than 2% for the week, the biggest in two years. The euro settled at $1.0970, down 0.06%.
The yen’s underperformance is also linked to comments last week from new Prime Minister Shigeru Ishiba, which fueled expectations that rate hikes in Japan are further away.
Yields on the 10-year U.S. Treasury rose a basis point to 3.9905%, their highest level in nearly two months. Yields fell early last week as investors bought Treasuries for protection after Iran launched more than 180 missiles against Israel amid escalating geopolitical tensions.
Market expectations went to the extreme that the Federal Reserve would settle for a 25 basis point cut in November, instead of 50 basis points, following the jobs data. According to the CME’s FedWatch tool, they now estimate a 95% probability of a quarter-point reduction, compared to 65% in the middle of last week, and a 5% probability of no reduction at all.
The British pound also remained stable around $1.3122, despite last week’s 1.9% decline, its biggest fall since the start of 2023.
The Bank of England’s chief economist, Huw Pill, said on Friday that the central bank should only move gradually to cut interest rates, a day after Governor Andrew Bailey was quoted as saying that the BoE could act more aggressively to reduce borrowing costs.
Related News :