Weak data, rate cut bets knock dollar to six-month low against yen

Beawiharta | Reuters

The U.S. dollar fell to a six-month low against the Japanese yen on Wednesday after weak private jobs data increased expectations of Federal Reserve interest-rate cuts in 2019.

U.S. private employers added 27,000 jobs in May, well below forecasts and the smallest monthly gain in more than nine years, a report by a payrolls processor showed.

The report knocked the dollar to its weakest against the safe-haven yen since Jan. 10, last down 0.15% at 108.30 , building on a multi-day slide driven by growing expectations of interest rate cuts. The dollar index fell to an eight-week low, its fourth straight daily decline, last at 97.26.

Fed Chairman Jerome Powell dropped his standard reference to the bank being "patient" in approaching a rate decision on Tuesday, saying instead it would respond as "as appropriate" to trade pressure. Expectations of an interest rate cut as soon as July rose to 55.4% from 26.5% a week prior, according to CME Group's FedWatch tool.

"Not only are we pricing in rate cuts aggressively, we're pricing them in soon," said Marvin Loh, senior global markets strategist at State Street Global Markets.

Those expectations may be overblown.

"I don't think the Fed wants to cut," said Loh. "The data remains, not great compared to last year, but above trend."

The U.S. Labor Department delivers its non-farm payrolls report on Friday, which includes both public and private-sector employment. Economists polled by Reuters expect that report to show job growth slowed in May.

"We'll be looking for some sort of confirmation that the three month average is still in place. Last month was such an outlier in terms of gains that you would expect it to slow down a bit," said Loh.

The European Central Bank meets on Thursday, with investors looking to see how concerned policymakers are about signs of a downturn in growth. Speculation that the ECB could possibly announce looser terms for a new cheap lending scheme sent German 10-year government bond yields to a record low of minus 0.230%. The euro was up 0.17% at $1.123.

Recession fears are sweeping across the world and central banks have cut rates in recent weeks.

Australia's central bank on Tuesday slashed benchmark cash rates to a record low of 1.25%. Last month, New Zealand's central bank cut its benchmark interest rate for the first time in two-and-a-half years.