Chuck Mikolajczak
NEW YORK (Reuters) – The dollar fell against most currencies for a fourth straight session on Monday as recent labor market data and comments from Federal Reserve officials fueled hopes of a rate cut, but the dollar strengthened against the yen after expected interventions last month week.
The index, which measures the US dollar against a basket of major currencies, experienced its longest losing streak since early March. Friday’s U.S. jobs report showed the smallest job gain since October, easing concerns that the Federal Reserve will have to keep interest rates high for longer.
Fed Chairman Jerome Powell’s comments on Wednesday that rate hikes remain unlikely were echoed by other Fed officials on Monday. New York Fed President John Williams said the central bank will “eventually” cut interest rates, although he did not give a time frame.
Richmond Fed President Thomas Barkin said the current level of interest rates is restrictive enough to cool the economy and return inflation to the central bank’s 2% target.
The economic calendar is bright this week, as evidenced by consumer sentiment data from the University of Michigan on Friday, while a number of Fed officials are scheduled to speak, including Fed Governors Lisa Cook and Michelle Bowman later this week.
The dollar will remain weaker “as long as the data supports it and as long as Fed speakers don’t contradict Jay Powell, but I have a feeling some of them will,” said Thierry Wiseman, global FX and rates strategist . at Macquarie in New York.
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“The labor market is obviously looser now than it was a year ago, but at the same time these guys who are more hawkish can easily make the case for higher and longer rates,” he said.
The dollar index fell 0.1% to 105.06 and the euro rose 0.12% to $1.0771.
The yen weakened against the US dollar after posting its strongest weekly gain since early December 2022 last week following two rounds of proposed intervention by the Bank of Japan to lift the currency from a 34-year low of 160.245 per dollar. The yen rose 3.5% for the week.
On Monday, the yen weakened 0.61% against the US dollar to 153.92 per dollar.
Japanese and British markets were closed for the holiday on Monday, but as Japanese authorities chose quiet periods last week to intervene in the foreign exchange market, traders were wary of the possibility of a holiday.
Traders estimate the Bank of Japan spent nearly $59 billion defending the currency last week, but that was likely just buying time, analysts said, as the market still views the yen as a selling option.
However, “it’s quite dangerous to be long the dollar and the yen right now,” Wiseman said.
“The point is not that foreign exchange interventions in themselves are effective, but simply that if the Bank of Japan thinks that US yields have peaked (not saying that they have), but if it thinks that yields have The US has reached its peak, he will be asked to try it.” intervene again.”
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While Japan clearly has the ability to intervene more, the broader macroeconomic environment remains very negative for the yen, according to Goldman Sachs strategists, who argue that the “success” of intervention can only go so far.
Analysts at Barclays said the interventions would “do no more than delay a possible” dollar rise.
The yen came under pressure as US interest rates rose while Japanese interest rates remained near zero, pushing cash out of the currency and into higher-yielding assets.
The latest weekly report from U.S. regulators showed that non-commercial traders, a category that includes speculative traders and hedge funds, cut their short positions in the yen to 168,388 futures contracts in the week ended April 30, still close to their biggest bearish positions. positions since 2007.
Markets are now pricing in nearly 50 basis points of Fed rate cuts this year, including a 65.7% chance of a rate cut of at least 25 basis points in September, according to CME’s FedWatch Tool.
Sterling strengthened 0.16% to $1.2564 ahead of the Bank of England’s policy statement on Thursday, when interest rates are expected to remain at 5.25%.