The dollar remained under pressure on Thursday as renewed concerns over the U.S. economy’s growth outlook heightened expectations of a supersized rate cut from the Federal Reserve this month.
The yen emerged as a standout performer, benefiting from safe-haven demand and the prospect of upcoming rate hikes from the Bank of Japan, which could strengthen the currency by narrowing interest rate differentials. The yen rose 0.26% to 143.36 per dollar, after reaching a one-month high of 143.20 earlier in the session, and is up 1.8% for the week so far.
Global markets have been jittery, particularly in equities, after weaker-than-expected U.S. data this week raised concerns about the growth outlook for the world’s largest economy. The soft data also suggested that the labor market could be slowing more than anticipated.
“The markets are getting anxious,” said Hemant Mishr, chief investment officer at S CUBE Capital in Singapore. “There was a time when the markets were just focusing on positive news. There’s a perceptible change, the market is now focusing on negative news and rationalizing a sell-off.”
Wednesday’s U.S. job openings data revealed a drop to a three-and-a-half-year low in July, reinforcing concerns that the labor market is losing steam. This came after Tuesday’s ISM manufacturing survey showed continued contraction.
Economists at Wells Fargo noted that the job openings data for July showed “few signs of the ongoing cooling in the labor market coming to an end,” and reaffirmed that the labor market is no longer a source of inflationary pressure.
Investors are closely watching U.S. labor market data, given the Fed’s focus on maintaining its health. The dollar was nursing losses from the previous session, with traders increasing bets that the Fed will start a more aggressive easing cycle this month.
The U.S. dollar index edged up 0.02% to 101.28, while the euro dipped slightly by 0.05% to $1.1077 and sterling held steady at $1.3146. The Australian dollar slipped 0.02% to $0.6724 but found some support from the Reserve Bank of Australia’s hawkish stance.
Traders are now assigning a 45% chance that the Fed will lower rates by 50 basis points at its upcoming meeting, with more than 100 bps worth of cuts expected by year-end. The spotlight remains on Friday’s nonfarm payrolls report, which is anticipated to show 160,000 jobs added in August, with the unemployment rate forecast to ease slightly to 4.2%.
“Our estimate for Friday is around 4.2% to 4.3% for the unemployment rate. If it exceeds 4.5%, markets will start expecting a 50bp cut,” said Mishr of S CUBE Capital.
In other currencies, the New Zealand dollar rose 0.05% to $0.6202, while the onshore yuan strengthened roughly 0.2% to 7.1003 per dollar, hovering near its strongest level in over a year.