The yen should be cautious about currency intervention | 06 May 2024

USDJPY:

On Monday, the USD/JPY pair broke a three-day losing streak during Asian trading. The pair's rise was fuelled by a moderate rebound in the US Dollar (USD) and comments from US Treasury Secretary Janet Yellen on potential Japanese intervention last week. The pair is currently trading around 153.55, having added 0.35% on the day.

US Treasury Secretary Janet Yellen noted the sharp swings in the value of the Japanese yen last week, but declined to comment on whether Japan had intervened to support the currency. "I'm not going to comment on whether they were intervening or not," Yellen said. Her comments on alleged Japanese interventions have varied over the past two years, often focusing on the Group of Seven's agreement to support market-based exchange rates. Yellen emphasised that interventions should only be aimed at reducing market volatility and not at manipulating exchange rates. Meanwhile, Japanese Finance Minister Shunichi Suzuki did not confirm information about the interventions, as reported by Bloomberg.

Growing speculation that the US Federal Reserve (Fed) will cut interest rates in September following the release of weaker-than-expected US jobs data put pressure on the US dollar. The CME Fedwatch tool indicates that market participants now estimate the probability of the Fed Funds rate remaining unchanged in June at 85.5 per cent, while the probability of a September rate cut has risen to 90 per cent.

The US jobs report released on Friday indicated a potential slowdown in the US economy. The number of employed in the non-farm sector (NFP) in April increased by 175 thousand from 315 thousand in March (revised from 303 thousand), falling short of the forecast of 243 thousand. This represents the lowest figure since October 2023. The unemployment rate increased to 3.9% in April, while average hourly earnings fell by 3.9% year-on-year. Finally, the US ISM Services PMI from ISM declined into contractionary territory, falling from 51.4 in March to 49.4 in April, below the market estimate of 52.0.

Trade recommendation: Trade buy orders when the price reaches 154.10. Sell at the price level of 152.80.

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