Dollar wanders after US jobs data and Middle East blowout By Reuters

By Vidya Ranganathan

SINGAPORE (Reuters) – The Japanese yen fell to its lowest level in nearly two months and other major currencies faced losses on Monday, while the dollar extended a rally sparked by strong U.S. jobs data on Friday and of an escalation of the conflict in the Middle East.

The yen fell marginally to 149.10, its weakest since Aug. 16. But that came on top of a more than 4 percent drop last week, the biggest weekly percentage drop since early 2009.

The dollar’s gains followed a US jobs report that showed the biggest increase in jobs in six months in September, a drop in the unemployment rate and solid wage gains, all pointing to a resilient economy and forcing markets to lower prices for Federal Reserve rate cuts.

“With interest rate cuts still the default position and when married to upbeat earnings expectations and China struggling on liquidity and budget, the equity bull case and the US dollar have a chance,” said Chris Weston, Head of Research at Australian Online Broker Pepperstone.

“While geopolitical headlines and the possibility of an energy supply shock remain an ongoing threat to sentiment, long-risk bearers heard nothing significant from the market move over the weekend and head into the new trading week feeling pretty good about the prospect of going on. upside down”.

In the latest developments in the Middle East, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on Sunday, ahead of the one-year anniversary of the Oct. 7 attacks that sparked its war. Israel’s defense minister also said all options are open for retaliation against arch-enemy Iran.

futures were 0.7 percent lower on Monday but rose more than 8 percent last week, the biggest weekly gain since early January 2023.

The measure against major rivals was flat. It rose 0.5 percent on Friday to a seven-week high, posting gains of more than 2 percent for the week, the biggest in two years. The euro settled at $1.0970, down 0.06%.

The yen’s underperformance also has to do with comments last week from new Prime Minister Shigeru Ishiba that fueled expectations that rate hikes in Japan are more distant.

they were last up one basis point (bps) at 3.9905%, the highest level in nearly two months. Yields fell earlier last week as investors bought Treasuries for safe havens after Iran fired more than 180 missiles at Israel in escalating geopolitical tensions.

Market expectations have run high for the Federal Reserve to cut by just 25 bps in November, rather than 50 bps, following the jobs data. Prices now have a 95% chance of a quarter-point cut, up from 65% in the middle of last week, and a 5% chance of no cut at all, according to CME’s FedWatch tool.

Sterling was also steady around $1.3122, down 1.9% from last week, its steepest decline since the start of 2023.

The Bank of England’s chief economist, Huw Pill, said on Friday the central bank should move only gradually with interest rate cuts, a day after Governor Andrew Bailey was quoted as saying the BoE could move further aggressively to reduce borrowing costs.