Dollar steady on renewed rate cut bets; yen starts week on back foot

Source: Market Screener

SINGAPORE, May 6 (Reuters) - The dollar was broadly steady on Monday as a soft U.S. jobs report boosted wagers that the Federal Reserve may still cut rates this year, while the yen lurched lower after last week's suspected intervention fuelled wild ride.

The yen had clocked last week its strongest weekly gain since early December 2022 following two bouts of suspected interventions from Tokyo to pull the currency away from a 34-year low of 160.245 per dollar. It gained 3.5% in the week.

On Monday, the yen was broadly lower, slipping 0.63% to 153.95 per U.S. dollar, down 0.60% to 192.62 per pound and 0.64% lower at 165.715 per euro.

Japan is closed for a holiday on Monday as is Britain, likely resulting in lower volumes. But with Japanese authorities choosing last week's quiet periods to intervene in the currency market, traders will be on high alert through the day.

The more than 9 trillion yen that the Bank of Japan is estimated to have spent to prop up the frail yen last week has only bought it some time, analysts say, as the market still views the currency as a sell.

While Japan clearly has capacity to intervene more, the broader macro environment remains quite negative for the yen, according to Goldman Sachs strategists, noting intervention "success" can only go so far.

"But, buying time is still valuable, as it reduces the potential for economic disruptions from the exchange rate adjustment and could stabilise the currency until the economic backdrop becomes more supportive for JPY," they said in a note.

The yen has been under pressure as U.S. interest rates have climbed and Japan's have stayed near zero, driving cash out of yen and into higher-yielding assets.

The latest weekly report from U.S. regulators showed that non-commercial traders, a category that includes speculative trades and hedge funds, reduced their yen short positions to 168,388 futures contracts in the week ended April 30, still close to their largest bearish positions since 2007.

"In a week that light on U.S. data and heavy on Fed speeches, the Fed's rhetoric post-payrolls will determine whether dollar-yen retests the 160-level anytime soon," said Nicholas Chia, Asia macro strategist at Standard Chartered.

Mainland China's markets opened after being closed for three days last week. In that time, the offshore yuan had risen on the back of the dollar's broad retreat and as Fed Chair Jerome Powell confirmed the central bank's easing bias and Japan intervened to push the yen higher.

The offshore yuan eased to 7.2160 per dollar, having gained more than 1% last week. In the spot market, the onshore yuan opened at 7.2009 per dollar, its strongest since March 25. It was last at 7.2144.

Data on Friday showed U.S. job growth slowed more than expected in April and the increase in annual wages fell below 4.0% for the first time in nearly three years, as signs of labour market cooling raised optimism that the U.S. central bank could engineer a "soft landing" for the economy.

Markets are now pricing in 45 basis points of cuts this year, with a rate cut in November fully priced in.

"The softer data will be welcomed by the Fed as the loosening labour market and slower wage growth will help ease inflation," said Mansoor Mohi-Uddin, chief economist at Bank Of Singapore.

The Fed held interest rates steady at the conclusion of its two-day monetary policy meeting, as expected, last week but signalled it was still leaning towards eventual rate cuts, even if they may take longer to come than initially expected.

The dollar index, which measures the U.S. currency against six rivals, was at 105.16, having touched a more than three-week low of 104.52 on Friday. The index is up nearly 4% this year.

The euro last fetched $1.0764, while sterling was little changed at $1.2545. The New Zealand dollar was 0.17% lower at $0.600.

The Australian dollar was flat at $0.6612 ahead the Reserve Bank of Australia's policy decision on Tuesday where the central bank is generally expected to keep rates at 4.35% having been on hold since last November.

(Reporting by Ankur Banerjee in Singapore; Editing by Jamie Freed and Jacqueline Wong)