Dollar drops on jobs data, yen rises from 10-month low

By Karen Brettell

NEW YORK (Reuters) – The U.S. dollar fell on Tuesday after data showed that U.S. job openings fell in July, as investors await more comprehensive labor market numbers in this week’s jobs report for August.

The Japanese yen also gained, after earlier falling to a 10-month low.

Job openings, a measure of labor demand, dropped 338,000 to 8.827 million on the last day of July, the lowest level since March 2021.

The data “have increased confidence that the FOMC will not increase rates at the upcoming September 19-20 policy meeting, and indeed, could be done,” noted analysts at Action Economics.

U.S. economic data has shown resilience in the face of higher interest rates, but investors are on guard for signs of any lagging impacts from the monetary tightening.

Investors have raised bets that the Federal Reserve could continue hiking rates, or keep rates higher for longer as it tries to bring inflation down closer to its 2% target while the job market remains tight.

Markets see an 87% chance of the Fed standing pat on interest rates next month, but the odds of a hike by the November meeting have risen, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.

A November rate hike is now seen as a 47% probability, down from 62% on Monday, but up from 46% a week ago.

Fed Chair Jerome Powell said on Friday that further rate increases may be needed to cool still-too-high inflation, but also promised to move with care at upcoming meetings.

Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, noted that markets are likely pricing in too many Fed rate cuts in 2024 relative to other central banks, and traders repricing this probability could boost the greenback further.

“That tells me that the dollar still has some more room to run, at least in the near term,” he said.

Against a basket of currencies, the dollar was last down 0.49% at 103.51. It is holding below the 104.44 level reached on Friday, which was the highest since June 1.

U.S. personal consumption expenditures on Thursday and the August jobs reports on Friday are in focus this week for further clues on the direction and strength of the U.S. economy.

The dollar briefly reached an almost 10-month high against the Japanese yen earlier on Tuesday, before dropping on the jobs data.

The Bank of Japan remains an outlier among global central banks with its loose monetary policy, even as it slowly shifts away from yield curve control.

“It is moving away from excessively loose monetary policy, but it’s doing so at a very slow and measured pace,” Rai said. “It’s still punitive to be short dollar/yen.”

The dollar hit 147.375 yen, the highest since Nov. 7, and was last at 145.84, down 0.47% on the day.

Traders are watching for any signs of intervention by Japanese officials to shore up the ailing currency. Japan intervened in currency markets last September when the dollar rose past 145 yen, prompting the Ministry of Finance to buy the yen and push the pair back to around 140 yen.

Charu Chanana, market strategist at Saxo, said that the intervention threat has retreated at sub-150 levels, given a lack of currency-related comments from Bank of Japan Governor Kazuo Ueda at the Jackson Hole conference and no signs of verbal intervention yet.

Euro zone inflation data due on Thursday may be key to whether the European Central Bank hikes rates at its September meeting, which in turn could set the near-term tone for the euro.

“We have the euro zone CPI report Thursday which the market is putting a great deal of weight on with the ECB’s decision in September seen as finely balanced,” said Lee Hardman, senior currency analyst at MUFG.

The euro was last up 0.49% at $1.0871. It fell to $1.07655 on Friday, the lowest since June 13.