Title: USD/JPY Tumbles Below 147.50 Amid Weak US Economic Data
By: FXStreet News Report (Original article by FXStreet Editorial Team)
The USD/JPY currency pair experienced a sharp decline in trading, falling over 2 percent amid broad US dollar weakness. This drop comes in response to disappointing economic data from the United States that has raised market concerns about the Federal Reserve’s future monetary policy decisions. The pair fell below the key 147.50 level, hitting its lowest point since December 2023.
This article presents an in-depth look into the latest market movements affecting the USD/JPY pair, key economic indicators released recently, and the evolving expectations around monetary policy in both Japan and the United States.
Key Highlights:
– USD/JPY fell over 2 percent, breaking below the 147.50 level
– Weak US data weighed heavily on the US dollar across the board
– US job openings, ISM manufacturing and construction spending all pointed to economic slowdown
– Investors are now recalibrating their Federal Reserve interest rate expectations
– Japan continues to maintain an ultra-accommodative monetary policy stance
Decline in USD/JPY: What’s Driving the Drop?
The decline in USD/JPY was prompted by several economic releases on Thursday that painted a softer picture of the US economy. As the greenback lost strength, the yen capitalized on the move.
Weak US Economic Data
The catalyst for the downturn came from three disappointing US economic readings:
1. JOLT Job Openings:
– The Bureau of Labor Statistics reported that job openings in the US dropped to 8.06 million in June, lower than the forecast of 8.25 million and the previous month’s revised figure of 8.35 million.
– The data indicates a cooling labor market which could slow consumer spending.
2. ISM Manufacturing PMI:
– The Institute for Supply Management’s Manufacturing PMI fell to 46.9 in July from 48.5 in the previous month.
– This marks the 11th consecutive month of contraction (below the neutral 50 mark), pointing to sustained weakness in the manufacturing sector.
3. Construction Spending:
– US construction spending unexpectedly remained flat in June, underperforming expectations of a 0.6 percent rise.
– Soft reads in this category suggest slower investment and economic activity in the sector.
These data points taken together signal that cracks are forming in the US economic resilience narrative, possibly making it more difficult for the Federal Reserve to justify maintaining high interest rates in the months ahead.
USD Weakens Across the Board
The greenback’s vulnerability was not limited to the yen. Broad weakness in the US dollar throughout Thursday’s session confirmed that the shift in sentiment was not isolated.
– The DXY (US Dollar Index), which measures the currency against a basket of peers, fell over 0.5 percent on the day
– Currencies such as the euro and British pound gained, while traditionally safer havens like the Japanese yen and Swiss franc also strengthened
– USD/CHF, EUR/USD and GBP/USD all registered significant intraday gains
Reevaluation of Federal Reserve Policy Outlook
The weaker-than-expected economic data has led to renewed speculation that the US Federal Reserve may adopt a more cautious and dovish approach in the coming months.
Key considerations:
– Fed Chair Jerome Powell has reiterated the Federal Reserve’s data-dependent stance. Given deteriorating indicators, market participants now doubt the likelihood of further tightening.
– Fed funds futures markets have shifted, showing increasing bets that the central bank may cut rates sooner than previously anticipated.
– At the July meeting, the Fed raised its benchmark interest rate to a range between 5.25 and 5.50 percent. Some now believe this may represent the cycle peak.
Treasury Yields Fall in Tandem
In line with falling inflation and recessionary concerns, US Treasury yields declined along with the dollar.
– The 10-year Treasury yield dropped to 3
Explore this further here: USD/JPY trading.