The U.S. dollar held on to recent gains against the yen on Tuesday after reaching a new nine-and-a-half-month high. It also edged higher against the euro as traders focused on Japan’s fiscal plans and awaited key U.S. economic data that may guide the Federal Reserve’s next steps.
Fresh data from the Cleveland Fed showed that 39,000 Americans received advance layoff notices last month. An ADP Research report also indicated that employers cut an average of 2,500 jobs per week during the four weeks ending November 1.
These figures come at a time when investors worry that the U.S. economy is losing momentum and that the outlook for interest-rate cuts continues to weaken.
“This aligns with the broader signs of a softening labour market,” said John Velis, head of Americas macro strategy at BNY Markets. He added that overall sentiment remains “soft risk-off,” with lower bond yields, weaker equities, but little movement in the dollar.
The dollar index, which measures the U.S. currency against major peers, rose 0.09% to 99.63 after breaking a four-day losing streak on Monday.
The yen traded at 155.42 per dollar, slipping 0.1%. Earlier in the session, it hit 155.445, its weakest level since February 4.
While Bank of Japan Governor Kazuo Ueda has signalled the possibility of a rate hike as early as next month, Prime Minister Sanae Takaichi has opposed the idea and called on the Bank of Japan to support the government’s push to reflate the economy.
Barclays recommended staying long on the dollar against the yen, suggesting that Takaichi’s Abenomics-style spending policies could keep the yen under pressure. The bank raised its target to 158.8, arguing that new fiscal stimulus will increase Japan’s debt and push investors to demand a higher risk premium.
“Japan has added a new level of uncertainty,” said Juan Perez, director of trading at Monex USA. “With more aggressive spending, they lose some of their traditional safe-haven appeal and become more volatile.”
Intervention Concerns Rise
Analysts also pointed to a growing risk of foreign-exchange intervention, which could slow the dollar’s rise. However, they noted that recent warnings from officials do not suggest immediate action.
Japanese Finance Minister Satsuki Katayama expressed concern on Tuesday about currency movements. Meanwhile, Goushi Kataoka, a private-sector member of a key government panel, told Reuters that Japan needs a stimulus package of around 23 trillion yen. This is far above the previously reported 17-trillion-yen plan and has raised new worries about how much government debt the market will need to absorb.
Japan’s government bond yield curve steepened further, with 20-year yields reaching a 26-year high as markets reacted to the potential size of the stimulus.
Investors are also watching for the September U.S. jobs report, due Thursday, for clues on the Fed’s next actions. “Any data release that gives us insight will be welcomed,” Perez said.
Fed Governor Christopher Waller continued to support the case for more rate cuts amid ongoing debate within the central bank. Fed Vice Chair Philip Jefferson, however, said policymakers need to “proceed slowly.”
Money markets now price the odds of a 25-basis-point rate cut next month at around 50%, down from about 60% a week ago.
The euro fell 0.15% to $1.1575, while the Swiss franc traded at 0.7991 against the dollar. In the crypto market, bitcoin climbed 1.33% to $93,024.36 and ethereum rose 3.72% to $3,118.88.
