Reuters: The dollar remained stable on Monday after a solid U.S. jobs report suggested the Federal Reserve could maintain its hawkish stance for longer, while the yen was pressured by news that Bank of Japan Deputy Governor Masayoshi Amamiya was being considered for the future governor position.
DOLLAR HELD FIRM AFTER ROBUST U.S. JOBS DATA
The Nikkei newspaper claimed, citing unidentified government and ruling party sources, that the administration of Prime Minister Fumio Kishida was in the final stages of selecting Haruhiko Kuroda’s replacement and two new deputy governors. Monday at a news conference, Deputy Chief Cabinet Secretary Yoshihiko Isozaki stated that the Nikkei report was false. The yen fell 0.42 percent to 131.75 per dollar, after touching three-week lows of 132.60 per dollar earlier in the session. “Amamiya has advised Kuroda on monetary policies since 2013 and is regarded as the most dovish candidate,” Saxo Markets strategists said. “This dashes hopes that BOJ policy normalization could advance under the new leader.”
As a result of distorting market function, the BOJ’s lax policy settings have attracted increased criticism from a variety of parties, including opposition lawmakers and merchants. Amamiya was instrumental in formulating Kuroda’s asset-purchasing program in 2013 and has repeatedly advocated for ultra-low interest rates. However, he also stated in July that the BOJ must “constantly” consider leaving ultra-loose monetary policy. On Friday, the United States The carefully watched employment data from the Labor Department revealed that nonfarm payrolls increased by 517,000 positions last month. A Reuters survey of economists anticipated an increase of 185,000. On Monday, the dollar jumped higher and was strong. The U.S. dollar reached a four-week high of 103.22 against a basket of currencies before settling at 103.03. On Friday, the index had gained 1.1%.
Wednesday, the Federal Reserve hiked interest rates by 25 basis points and announced that it had turned a corner in its fight against inflation, prompting investors to price in a more dovish monetary policy going forward. Nonetheless, investors are questioning if the Federal Reserve is nearing the end of its monetary tightening strategy in light of January’s resurgence in the U.S. services sector. Tapas Strickland, head of market economics at the National Australia Bank, stated, “The worry is that the much better-than-expected data is bad news if the Fed interprets it as supporting its case for two more rate hikes and keeping rates elevated for longer.” Fed Chair Jerome Powell and the broader committee, according to Citi strategists, are increasingly optimistic about the possibility of a “soft landing” in which inflation declines amid a robust labor market.
Citi stated that Friday’s result should make the Fed even more concerned that labor markets are too tight to be consistent with inflation at the target level. Traders anticipate that the Fed’s policy rate will peak in June at 5.05% before the central bank reduces rates in the second half of the year. Escalating tensions between the U.S. and China after a U.S. military fighter jet shot down a suspected Chinese surveillance balloon off the coast of South Carolina on Saturday also boosted the dollar. At $1.0795, the euro was up 0.02 percent. Europe’s single currency fell 1% on Friday and earlier in the session hit a three-week low of $1.07815. Sterling last traded at $1.2057, an increase of 0.05% on the day, after reaching a one-month low of $1.2031.
BRITISH POUND
Sterling fell against the dollar on Friday, according to Reuters, as a much greater-than-anticipated increase in U.S. job growth boosted the dollar and fueled speculation that the Federal Reserve may opt for a stronger interest rate hike next month. The pound reversed earlier gains, plunging as much as 1% on the day to $1.20, its lowest level in three weeks. Last seen 0.8% down at $1.21295. The carefully anticipated employment report from the U.S. Department of Labor revealed that nonfarm payrolls increased by 517,000 last month, significantly above estimates of an increase of 185,000 positions. “This (NFP) gives the Fed more ammunition to continue hiking… further and for longer,” said Brandon Pizzurro, director of public investments for Texas-based Guidestone Capital Management.
Traders are currently pricing in a 90% possibility of a 25-basis-point rate hike by the Fed next month. A 25 basis point increase earlier this week and related remarks prompted wagers that the Fed will pick for lesser increases at future sessions. The dollar index, which compares the greenback to a basket of other major currencies, was up 0.7% at the time of writing. The pound extended its losses against the euro, with the pair edging up 0.1% to 0.89365 but still near to the four-month lows reached on Thursday following the Bank of England’s policy meeting. The BoE stated that UK inflation may have “turned the corner,” indicating that the central bank may be nearing the conclusion of its tightening cycle.
The Bank of England (BoE) raised its key interest rate by 50 basis points to 4% on Thursday, the highest level since 2008, marking the 10th consecutive increase in rates. The British pound was poised for a 2.2% weekly slide versus the dollar, its largest weekly decline in over four months. This week, the Euro-Pound is expected to increase by 1.9%, the highest weekly gain for the Euro in three months.
SOUTH AFRICAN RAND
As of 15:48 GMT on Thursday, the Rand was trading at 17,4000 against the dollar, a decrease of 1.77 percent from its previous close of 17,0975. The South Africa Purchasing Managers Index for January decreased to 48.7 from 50.2 in December. Less than 50 indicates a decrease in activity. The poll revealed that it was the quickest rate of decline since the end of 2021, as new orders plummeted owing to recurring power outages and dismal economic conditions.
Last week, the South African central bank lowered its growth projections for 2023 and 2024 to 0.3% and 0.7%, respectively, citing the possibility that power disruptions could reduce this year’s growth by up to 2 percentage points. The dollar rose on Friday after statistics revealed that U.S. firms added much more jobs in January than economists anticipated, giving the Federal Reserve more room to continue raising interest rates.
The All-Share index on the Johannesburg Stock Exchange increased by 0.55 percent. The yield on the benchmark 2030 government bond fell by 8.5 basis points to 9.585%.
WORLD MARKETS
Asian stocks declined on Monday, according to Reuters, after a string of positive economic statistics from the United States and throughout the world reduced the likelihood of a recession, but also showed that interest rates would need to increase more and remain elevated for longer. Bond markets took a beating on Friday as a result of shocking employment and services data, putting speculators in a severe dollar shortage and sending the currency substantially higher. On Monday, the dollar strengthened against the yen to a three-week high of 132.60, after news that the Japanese government had offered Masayoshi Amamiya the position of central bank governor. Amamiya has been intimately involved with the Bank of Japan’s current ultra-easy policies, and the markets view him as more dovish than other candidates. The initial gains were eventually reduced to 131.94 yen, but they helped the dollar maintain its position against a basket of currencies at 103.090, despite having risen 1.2% on Friday. After dropping 1.1% on Friday, the euro was stuck at $1.0791.
MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.7%, with South Korea falling 1.0%. The Nikkei climbed 1.1%, buoyed by expectations that the BOJ will maintain soft monetary policy. Futures for the S&P 500 and Nasdaq fell 0.2% and 0.3%, respectively, as investors priced in the danger of additional rate hikes from the Federal Reserve and less likelihood of cuts later in the year in response to January’s outstanding employment report. Ahead of the employment report, futures are pricing in a quarter-point rate hike in March and possibly another in May, leaving the high at 5% from 4.9%. Similarly, rates on two-year Treasuries rose to 4.35 percent from 4.09% prior to the release of the report, while yields on 10-year Treasuries increased to 3.50 percent. This week, a number of Fed officials are scheduled to speak, lead by Chairman Jerome Powell on Tuesday; the tone may be hawkish. In addition, policymakers from the European Central Bank and the Bank of England will be there.
Bruce Kasman, head of economic research at JPMorgan, remarked that recent global manufacturing surveys also indicated an increase in January. “The data definitively dispel the narrative of an imminent recession,” wrote Kasman in a note. “Importantly, we see material risk that developed market rates will need to rise well above market estimates for the cycle’s terminal rates, even as we expect the Fed to signal a pause next quarter.” Gold, for example, dropped 2% on Friday and was last quoted at $1,865 per ounce. Oil futures stabilized on Monday after losing 3% on the release of payrolls data. Brent rose 11 cents to $80.05 per barrel, while U.S. crude strengthened 13 cents to $73.52 per barrel.
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