The Dollar's Decline and the Yen's Surge
The US dollar fell to a three-week low against the Japanese yen on Friday, May 2nd, following the release of data indicating a slowdown in US job growth and wage gains. This data fueled expectations that the Federal Reserve would cut interest rates twice this year.
The US economy added 175,000 jobs in April, falling short of the anticipated 243,000 increase. Annual wage growth also cooled, rising 3.9% in the 12 months through April, below the expected 4.0% and the previous month's 4.1%.
Despite the rise in the unemployment rate to 3.9%, it remained below 4% for the 27th consecutive month.
Market analysts interpreted the data as a sign of a weakening US economy, prompting them to raise their bets on the Fed cutting interest rates twice this year. Fed funds futures traders now anticipate 49 basis points of easing, up from 42 basis points before the data release.
"The data's soft across the board from the Fed's perspective," said Jason Pride, chief of investment strategy and research at Glenmede in Philadelphia.
While the report may not immediately influence Fed policy, it does offer a "cooler read of the labor landscape," according to Quincy Krosby, chief global strategist at LPL Financial in Charlotte.
The Fed, however, has indicated that it will take longer to cut rates due to persistent inflation.
Further data released on Friday showed a contraction in the US services sector in March, while a measure of prices paid by businesses for inputs jumped, raising concerns about inflation.
The dollar index fell 0.21% to 105.08, reaching its lowest point since April 10th. The euro gained 0.31% to $1.0758.
The greenback weakened 0.51% to 152.84 Japanese yen, reaching its lowest level since April 10th.
The yen's surge began on Wednesday and continued on Monday, attributed by traders and analysts to intervention by Japanese authorities.
Japanese Finance Minister Shunichi Suzuki stated on Friday that authorities may need to intervene to mitigate excessive yen fluctuations that negatively impact households and businesses.
The yen is on track for its best weekly percentage gain against the dollar since November 2022, following Japan's intervention in October 2022 to support the currency.
The Japanese currency reached a 34-year low of 160.245 on Monday, reflecting the wide interest rate differential between Japan and the United States.