The U.S. dollar slipped on Thursday as traders increased their bets on a significant rate cut from the Federal Reserve later this month. The Japanese yen outperformed, benefiting from safe-haven demand as concerns over the U.S. economy’s growth outlook re-emerged.
Global markets have been on edge, with stocks taking a hit after weaker-than-expected U.S. data this week. This data reignited fears that the growth prospects for the world’s largest economy might be dimmer than previously thought, and the labor market could be cooling faster than expected.
In response, investors have been fleeing riskier assets in search of safety, with the yen emerging as one of the primary beneficiaries. The Japanese currency was last 0.26% stronger at 143.56 per dollar, marking a nearly 2% gain for the week thus far. Similarly, the Swiss franc, another traditional safe-haven currency, remained steady at 0.8461 per dollar, although its weekly gain of 0.46% was more modest compared to the yen’s rise.
“The markets are getting anxious,” said Hemant Mishr, chief investment officer at S CUBE Capital in Singapore. “There was a time when markets focused mainly on positive news. Now there’s a noticeable shift towards emphasizing negative news, which is fueling the sell-off.”
Data released on Wednesday showed U.S. job openings in July dropped to a 3.5-year low, signaling that the labor market may be losing momentum. This followed Tuesday’s ISM manufacturing survey, which showed the sector remained in contraction.
“July’s job openings data showed continued cooling in the labor market, with no signs of reversal,” said economists at Wells Fargo. “For the Fed, this data reaffirms that the labor market is no longer contributing to inflationary pressures in the U.S. economy.”
With the Federal Reserve’s focus on safeguarding the labor market, investors have placed heightened importance on U.S. employment-related data. In early Asian trading, the U.S. dollar remained on the defensive, with the euro holding steady at $1.1083 and the British pound little changed at $1.3147. The U.S. dollar index, which tracks the greenback against a basket of currencies, slipped slightly to 101.25.
According to the CME FedWatch tool, traders are now pricing in a 44% chance of a 50-basis-point rate cut at the Fed’s upcoming meeting, up from 38% just a week ago. However, attention remains firmly on Friday’s nonfarm payrolls report. The market expects the U.S. economy to have added 160,000 jobs in August, up from July’s 114,000, while the unemployment rate is forecast to ease slightly to 4.2%.
“Our estimate for Friday is an unemployment rate between 4.2% and 4.3%. If it exceeds 4.5%, I believe the likelihood of a 50-basis-point cut will increase,” added Mishr from S CUBE Capital.
Elsewhere, the Australian and New Zealand dollars were weighed down by the prevailing risk-averse sentiment. The Australian dollar fell 0.15% to $0.67155, while the New Zealand dollar dropped 0.2% to $0.6186.
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