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Robust Dollar Strengthens Amid Mixed US Employment Statistics
USD/JPY Temporarily Surges to 140 Yen Level.
“Robust Dollar Strengthens Amid Mixed US Employment Statistics and USD/JPY Temporarily Surges to 140 Yen Level”
The US dollar exhibited strength in response to the release of employment statistics, triggering increased demand for the dollar and a brief surge in the USD/JPY pair to the 140 yen level. The US employment report presented a blend of outcomes, with non-farm payrolls (NFP) surpassing expectations by adding 339,000 jobs, demonstrating the resilience of the labor market. However, the unemployment rate experienced a notable increase to 3.7%, while average hourly earnings displayed signs of stabilization.
Although the latest US employment statistics provide rationale for further interest rate hikes by the Federal Reserve (Fed), the market currently contemplates a scenario where the Fed might temporarily pause rate increases in June and adopt a more cautious stance. As it stands, the short-term financial market estimates the probability of a rate hold in June to be approximately 65%.
Market sentiment is progressively leaning towards the possibility of a rate hike in July, with the current estimated probability hovering around 75%. This sentiment is evident in the overnight indexed swap (OIS) market, which is witnessing a shift towards pricing in a 0.25% rate hike until July, currently reaching an 80% probability.
Notably, both US bond yields and the stock market experienced overall gains, and the yen’s vulnerability driven by risk appetite further bolstered the rise in USD/JPY.
Despite encountering selling pressure, the euro managed to maintain levels around 1.07 dollars to the euro. No definitive indications have emerged suggesting a test of the 1.06 dollar support level witnessed earlier this week. Despite the Eurozone Harmonized Index of Consumer Prices (HICP) reflecting a deceleration in inflation, expectations of additional rate hikes by the European Central Bank (ECB) remain intact, offering support to the euro’s downside. Certain market participants observe that the limited room for a decrease in short-term Eurozone bond yields, attributed to potential ECB rate hikes, could provide some support for the euro.
ECB President Lagarde, despite the results of the Eurozone HICP, stated that there is no clear evidence of underlying inflation reaching its peak. The ECB minutes also imply that at least two more rate hikes are justified. Moreover, there is a possibility of service inflation rising during the summer months due to increased pricing pressure in the tourism sector.
The British pound encountered selling pressure, struggling around the mid-1.24 dollar level. The 21-day moving average is approaching the 1.2470 dollar level, indicating the potential for a rebound.
The previous day saw the release of several economic indicators related to the UK housing market, indicating that rising interest rates are starting to have a significant impact. April’s data revealed a decrease in the number of approved mortgage loans from 51,500 in March to 48,700, resulting in negative mortgage lending. Furthermore, repayment amounts exceeded new lending by £1.4 billion.
While the market anticipates the Bank of England to raise interest rates from the current 4.50% to 5.25%, the influence of rising interest rates and market expectations is projected to expand in the coming months. However, concerns regarding the stability of the banking sector have diminished following the Bank of England’s April figures, which exhibited a recovery in bank deposits.
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