In Friday’s European session, the USD/JPY pair extended its correction, nearing 161.80. The pair encountered downward pressure amidst growing apprehensions of Japan intervening in the foreign exchange market to counter one-sided excessive movements. This intervention speculation contributed to a notable weakening of the Japanese Yen and a consequent sell-off in the US Dollar (USD), driven by firm expectations that the Federal Reserve (Fed) will initiate interest rate cuts starting from its September meeting.
Despite efforts by Bank of Japan (BoJ) policymakers to advocate for further monetary tightening, the Japanese Yen struggled to make gains. The yen’s persistent weakness has bolstered consumer inflation expectations, enhancing Japan’s export competitiveness globally but also elevating import costs significantly.
However, concerns emerged following a sharp 1.8% contraction in Overall Household Spending in May, casting doubt on the BoJ’s path towards rate hikes. Economists had forecasted a more modest increase in household purchasing power, estimating growth at 0.1% compared to the previous release of 0.5%.
Market sentiment was influenced by increasing speculation that the Fed will move towards interest rate reductions in September, thereby boosting investor risk appetite. S&P 500 futures showed marginal gains during Asian trading hours, reflecting this evolving sentiment.
Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, continued its decline, marking a fresh three-week low near 105.00. Concurrently, 10-year US Treasury yields rose to approximately 4.36% ahead of the eagerly awaited US Nonfarm Payrolls (NFP) data release scheduled for 12:30 GMT.
Market expectations were subdued for the NFP report, anticipating the addition of 190,000 jobs in June, a significant decrease from May’s robust figure of 272,000. The Unemployment Rate was forecasted to remain stable at 4%.
The dynamics in the USD/JPY pair underscore ongoing uncertainties in global markets influenced by central bank policies and economic indicators, highlighting potential shifts in currency valuations and investor sentiment moving forward.
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