Dollar falls ahead of data deluge; yen firms after Takaichi’s election victory
The U.S. dollar fell on Monday after a solid week of gains, with investors looking ahead to a busy week for important economic data. Meanwhile, the Japanese yen strengthened on more intervention talk after Japanese Prime Minister Sanae Takaichi’s election victory.
At 14:50 ET (19:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% lower to 96.81.
The index is coming off a weekly gain of nearly 1%, triggered by the nomination of Kevin Warsh for the next Fed Chair. Also in the spotlight was the yen after Takaichi and her Liberal Democratic Party swept Japan’s snap election.
Dollar slips ahead of data deluge
The U.S. currency has started the new week on the backfoot as traders await the release of several key data releases, including retail sales, inflation and the keenly-watched delayed jobs report.
“U.S. labor market data surprised on the downside last week, and markets are now bracing for the Federal Reserve to potentially re-appraise its view of the jobs market,” said analysts at ING, in a note.
The focus this week will be on Wednesday’s release of the January payrolls report and also benchmark revisions.
“Consensus expects a decent +70k increase, but the market will be more sensitive to a downside miss,” added ING.
The Federal Reserve next meets in March, but Fed funds futures are only pricing in around a 15% probability of a 25-basis-point cut at that meeting.
Expectations grow sharply over the possibility of a cut in June, though, as this would be the first meeting with Warsh as head of the Fed, if his nomination by U.S. President Donald Trump is confirmed.
Also weighing on the dollar Monday was a report by Bloomberg News that indicated Chinese regulators have advised financial institutions to curb their U.S. Treasury exposure.
Euro rises, sterling weighed by politics
In Europe, EUR/USD traded 0.9% higher to 1.1917, with the single currency benefiting from the Bloomberg report.
“Europe offers the best alternative in terms of depth and liquidity to the U.S. Treasury market,” said ING.
“Stretched long positioning does look like the main barrier to a further EUR/USD advance,” the Dutch bank added. “Friday’s release of CFTC positioning data suggested that leverage fund net long positions are again approaching cyclical highs. But the short-term bias in EUR/USD looks to be towards 1.1900.”
GBP/USD traded 0.6% higher at 1.3694, with sterling failing to benefit from the dollar weakness amid pressure upon British Prime Minister Keir Starmer.
Starmer’s chief of staff resigned on Sunday, saying he was taking responsibility for advising Starmer to name Peter Mandelson as ambassador to the U.S., despite his known links to late sex offender Jeffrey Epstein.
“Expect pressure to remain on both sterling and Gilts as the market speculates over a change of personnel at numbers 10 and 11 Downing Street,” ING added.
Yen gets Takaichi boost
In Asia, USD/JPY fell 1% to 155.72.
The Japanese currency, which remains at historically low levels versus the dollar, was buoyed by a series of warnings from Japanese officials that they may intervene in markets to support the battered currency.
"Following the significant election results, Japan’s chief currency official, Atsushi Mimura, expressed that he is monitoring the markets with considerable urgency. In addition, Finance Minister Satsuki Katayama yesterday indicated that she is prepared to engage with the market today if necessary. So officials are bracing themselves," Deutsche Bank’s Jim Reid said.
The warnings offered temporary respite to the yen, which faces increased pressure after Takaichi’s sweeping lower house victory on Sunday. The prime minister’s ruling coalition now controls a supermajority in Japan’s lower house, opening up a clear path for her major fiscal spending plans.
"Japan’s ’Takaichi era’ can now be said to begin for real. As a political economy direction, ’Senaenomics’ for being demand-side inflationary (via more spending on defense, and pressure on the BoJ to loosen)," Thierry Wizman, global FX & rates strategist at Macquarie, said.
"But we see rather a focus on producing supply-side growth and innovation-driven productivity gains, based on a redirection of fiscal resources and tax-based incentive structures. We lean toward the greater importance of the resumption of growth as a factor that can eventually boost the JPY, if Takaichi succeeds in implementing ’Senaenomics’," he said.
"Indeed, although the JPY is stronger post-election today, stocks have also rallied, indicating perhaps a positive reassessment of growth in Japan, and long-term disinflation," Wizman added.
Elsewhere, USD/CNY edged 0.2% lower to 6.9220, and remained near levels last seen in mid-2023.
The yuan has firmed sharply in recent months amid continued support from the People’s Bank of China, which has set a series of aggressively strong midpoints for the currency.
Chinese CPI data is due on Friday and is also set to offer more cues on the world’s second-largest economy, ahead of the Lunar New Year holidays.
AUD/USD gained 1.1% to 0.7095, rising back above the 0.70 level as markets priced in more interest rate hikes by the Reserve Bank of Australia this year.
The RBA raised rates by 25 basis points last week and presented a hawkish outlook in the face of sticky inflation.
Source: Investing.com
