Key points:
The Japanese yen and Swiss franc traded close to multi-month highs against the dollar on Friday. An unexpected drop in U.S. manufacturing sparked fears of an economic slowdown, causing stocks and bond yields to fall sharply.
See: Japanese yen on the rise as seen on the VT Markets app.
The yen stood at 149.49 per dollar at 0400 GMT, having strengthened to 148.51 overnight, its highest level since mid-March. The Swiss franc gained about 0.1%, reaching 0.87225 per dollar, its strongest point since early February at 0.8722. These currencies outperformed the dollar overnight, which typically attracts safe-haven flows even when the U.S. is a source of economic concern.
In contrast, sterling fell to a fresh one-month low after nearly a 1% drop overnight as the Bank of England began its interest-rate cutting cycle with a finely balanced decision. The euro hovered near a one-month low following dovish remarks from a European Central Bank official.
On Wall Street, megacap stocks led a selloff that echoed across Asia. Japan’s Nikkei dropped as much as 5.3%, South Korea’s Kospi fell 3.3%, and Hong Kong’s Hang Seng declined 2%.
U.S. 10-year Treasury yields plunged as much as 14 basis points to 3.965% overnight, breaching the 4% psychological barrier for the first time in six months. The decline continued in Asia, reaching a low of 3.944%.
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The U.S. economic outlook will face a critical test later on Friday with the release of monthly payroll figures. Rate cut pricing appears excessive, with a possibility that U.S. data might stabilise, leading to a potential recovery in the dollar.
Meanwhile, sterling slipped 0.11% to $1.2721, earlier dipping to $1.2713, its lowest since July 3. The Bank of England’s Governor Andrew Bailey led a 5-4 decision to reduce rates by a quarter-point to 5%, indicating a cautious approach to future cuts. The central bank seems to prefer a steady quarterly pace of reductions.
Sterling is expected to gradually strengthen, as the central bank’s cautious stance on rate cuts suggests a balanced approach.
The euro remained flat at $1.0793 after reaching a three-week low of $1.07775 overnight. ECB policymaker Yannis Stournaras warned of a weak euro zone economy potentially pushing inflation below the 2% target, reinforcing expectations for two rate cuts this year.
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