Dollar Gains Momentum Following U.S. Jobs Data and Middle East Tensions – Reuters

By Vidya Ranganathan

SINGAPORE – The Japanese yen has dropped to its lowest point in nearly two months, while other major currencies are also experiencing declines as the U.S. dollar continues to strengthen. This rally was fueled by strong U.S. jobs data released on Friday and an increase in tensions in the Middle East.

The yen weakened slightly to 149.10, marking its lowest level since August 16. This decline follows a more than 4% decrease last week, which is the largest weekly percentage drop since early 2009.

The dollar’s ascent was prompted by a U.S. jobs report that indicated the biggest increase in jobs in six months for September, alongside a decrease in the unemployment rate and robust wage growth. These factors suggest a resilient economy, leading markets to reassess predictions for potential cuts to Federal Reserve interest rates.

Chris Weston, head of research at an Australian brokerage, stated that despite the ongoing geopolitical uncertainty and the threat of an energy supply shock, those positioned for risk haven’t encountered significant negative news over the weekend. As a result, they head into the new trading week with optimism about further gains.

In recent Middle East developments, Israel targeted Hezbollah positions in Lebanon and the Gaza Strip on Sunday, coinciding with the one-year anniversary of the October 7 attacks that propelled the current conflict. Israel’s defense minister has stated that all options remain available for retaliation against Iran.

Futures dropped 0.7% on Monday but rose more than 8% last week, marking the largest weekly gain since early January 2023. The dollar index, which measures the currency against major rivals, remained stable. It increased 0.5% on Friday, reaching a seven-week high, and recorded over 2% gains for the week, its most significant increase in two years. The euro traded at $1.0970, down 0.06%.

The yen’s underperformance can also be attributed to remarks made last week by Japan’s new prime minister, Shigeru Ishiba, which sparked speculation that interest rate hikes in Japan may be further off.

U.S. Treasury yields were recently up by one basis point at 3.9905%, their highest level in almost two months. Yields had dipped early last week as investors sought safe-haven Treasuries following an escalation in geopolitical tensions marked by Iran launching over 180 missiles at Israel.

Market expectations have shifted significantly regarding the Federal Reserve’s potential moves; the likelihood of a 25 basis point interest rate cut in November has surged to 95%, up from 65% earlier in the week, with only a 5% chance of no cut at all.

The British pound was also stable at around $1.3122, recovering from last week’s 1.9% decline, its steepest drop since early 2023. Bank of England Chief Economist Huw Pill commented on Friday that the central bank should proceed cautiously with rate reductions, following remarks by Governor Andrew Bailey that suggested a more aggressive approach to lowering borrowing costs might be considered.