Washington : On Thursday, the U.S. dollar touched its lowest level in a month against the yen and struggled against other major currencies as concerns about the U.S. economic outlook fueled expectations of a significant rate cut by the Federal Reserve next week.
The yen, which reached a one-month high, benefited from safe-haven demand and speculation that upcoming rate hikes from the Bank of Japan, while other central banks move toward cutting rates, could strengthen the Japanese currency due to narrowing interest rate differentials.
Global markets have been rattled by weaker-than-expected U.S. economic data this week, raising fears that the growth prospects for the world’s largest economy are dimming, and the labor market may be weakening more than anticipated. Stocks have also taken a hit as a result.
Market attention is now focused on Friday’s U.S. nonfarm payrolls report, along with data on private-sector employment, unemployment claims, and service-sector activity, all of which could trigger market volatility, according to Fiona Cincotta, market strategist at City Index.
“There’s a lot of anticipation for tomorrow’s data, which could either confirm or dispel the recession fears that have been growing since the July jobs report,” Cincotta said. “We might see a strong knee-jerk reaction on Friday, followed by a more measured response next week.”
The options market suggests traders are bracing for significant currency fluctuations, with implied volatility for the euro reaching its highest level since the banking crisis of March 2023, and volatility for the yen hitting a one-year peak.
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