TLDR
- The greenback is poised for its steepest weekly decline since the first week of April, sliding approximately 0.7% over the period
- Nonfarm payroll additions for June registered a mere 57,000, significantly undershooting the anticipated 110,000
- Probability of a September Fed rate increase plummeted from approximately 64% to a range of 35–52%
- The yen experienced a reprieve, recovering from its weakest level in 40 years at 162.84 against the dollar
- Japanese Finance Minister indicated readiness to intervene in currency markets if necessary
The greenback is poised for its most significant weekly decline in close to three months following a lackluster June employment report that dampened sentiment around potential Federal Reserve monetary tightening.
June’s nonfarm payroll additions totaled a modest 57,000. This figure came in well below the consensus estimate of 110,000 from economists. Employment data for the previous two months also underwent downward revisions.
The labor force participation metric declined to 61.5%, marking its weakest reading in over five years. Market participants swiftly recalibrated their expectations regarding the likelihood of imminent Fed rate adjustments.
Prior to the employment release, markets had assigned approximately a 64% probability to a September rate increase. Following the data, this likelihood tumbled to a range between 35% and 52%, based on CME FedWatch and LSEG metrics.
U.S. government bond yields retreated as well. Two-year Treasury note yields, which tend to move in tandem with monetary policy expectations, ended a three-session advance with a four basis-point decline.
The dollar index, which measures the currency’s strength relative to a collection of major peers, declined roughly 0.3% to settle at 100.68 on Friday. Over the week, the index has retreated about 0.7%, representing its largest weekly drop since the beginning of April.
Currency Markets React
The euro advanced toward $1.1472, approaching a two-week peak, and is tracking a weekly gain of approximately 0.6%. Sterling strengthened to $1.3380, positioned for a 1.2% weekly advance — its strongest performance in nearly three months.
The Australian dollar climbed to $0.6935, on course to halt a four-week slide. The New Zealand dollar registered a weekly increase of roughly 1.2%.
Karl Steiner, head of analysis at SEB, noted the disappointing data aligned with his team’s forecast for an eventual dollar reversal. He indicated potential for further weakness.
Yen Watchfulness
The Japanese yen enjoyed some respite this week, strengthening past 161 per dollar following its descent to a 40-year nadir of 162.84 on Thursday.
Finance Minister Satsuki Katayama stated on Friday that Tokyo maintains ongoing dialogue with Washington regarding currency markets and remains prepared to take action. Chief Cabinet Secretary Minoru Kihara emphasized that authorities were tracking market developments with heightened vigilance.
Market participants are now alert to the possibility of intervention, particularly during sparse holiday trading sessions with U.S. markets shuttered for Independence Day.
Tony Sycamore, analyst at IG, suggested that 162.83 appears to represent a near-term ceiling for the dollar-yen pair. He noted that the currency pair’s trajectory will be predominantly influenced by forthcoming U.S. economic releases and developments in Japanese government bond markets.
