Title: USD/JPY Holds Firm Above 148.00 as Focus Turns to US NFP Following Mixed PMI Data
By: FXStreet (Original Author: Anil Panchal)
Source: https://www.fxstreet.com/news/usd-jpy-steadies-above-14800-as-mixed-us-pmi-data-shifts-focus-to-nfp-202509021718
The USD/JPY pair maintained its position above the 148.00 psychological level in the early trading session of Tuesday, following a day of sideways movement. The currency pair’s stability comes as traders weigh unexpectedly mixed US Purchasing Managers’ Index (PMI) data. Market participants now shift their focus to Friday’s all-important US Nonfarm Payrolls (NFP) report, which could provide clearer direction on the Federal Reserve’s monetary policy path.
Key Highlights:
– USD/JPY remains buoyant around the 148.30 level early Tuesday.
– Mixed US PMI data reduces speculation of a June Fed rate cut.
– US Treasury yields edge slightly higher, offering additional support to the USD.
– Market attention shifts to US Nonfarm Payrolls data set for release on Friday.
– Japanese macroeconomic indicators remain soft, weakening Yen support.
Mixed US PMI Data Clouds Fed Rate Expectations
The latest PMI data from the US released on Monday delivered a mixed assessment of economic activity in the country’s manufacturing sector. The headline ISM Manufacturing PMI fell slightly more than expected in February, coming in at 47.8, missing the forecast of 49.5 and lower than the previous month’s 49.1. The reading signifies that manufacturing contracted for the 16th time in 17 months, signaling a continuation of subdued industrial performance.
However, contrasting with the soft ISM reading, S&P Global’s final US Manufacturing PMI for February came in at 52.2, slightly better than the flash estimate of 51.5 and solidly in expansion territory. The divergence between the two PMI reports presents a conflicting picture, prompting investors to tread cautiously ahead of further data confirmation.
The differential performance of these indices has led to a nuanced reassessment of Fed rate expectations. As of now:
– Fed funds futures continue to price in roughly 80 basis points (bps) of rate cuts in 2024.
– Market confidence in a June rate cut has slightly weakened, now reflecting about a 50% likelihood.
– The probability of a March cut remains extremely low.
US Treasury Yields Edge Higher
Yield dynamics in the US Treasury market played a supportive role for the dollar against the yen. On Monday, Treasury yields modestly bounced from their recent lows:
– The 10-year benchmark US Treasury yield moved up to the 4.22% area.
– The 2-year yield edged higher towards 4.57%.
Rising yields typically favor the dollar over the low-yielding yen by widening the interest rate differential. This rate spread remains an essential component in the carry trade, frequently leading to demand for the dollar against the Japanese currency under current market conditions.
Risk Sentiment Mixed Amid Global Developments
Risk appetite remains moderately supported by optimistic developments out of China, although upside momentum is capped due to Federal Reserve uncertainties and lingering global concerns.
In China, the latest Caixin Manufacturing PMI surprised markets with an improvement to 50.9 in February, compared to expectations of 50.6 and January’s 50.8.
– The recovery in China’s factory activity adds a layer of optimism for the global economy, potentially bolstering demand for large exporters in the region.
– However, a cautious market tone remains in place as traders await more conclusive data that might indicate the sustainability of this recovery.
Japanese Yen Struggles Amid Weaker Domestic Data
Weak Japanese economic data has added to the downward pressure on the yen. The latest Job Application Ratio fell to its lowest level since May 2022:
– Job Applications per Opening dropped to 1.27, down from expectations of
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