THE Japanese yen firmed against the US dollar on Wednesday (Sep 4) as investors scurried to safer assets after a sharp sell-off on Wall Street in the prior session sparked by concerns about the US economy and tech sector valuations.
The catalyst was ostensibly some soft US manufacturing data, which fanned worries about a hard landing for the world’s biggest economy, with traders already nervous ahead of the crucial monthly payrolls numbers on Friday.
US equity indexes slid on Tuesday, with AI chip giant Nvidia tumbling nearly 10 per cent. The risk-off mood spilled over to Asia and Europe on Wednesday.
“It’s a bit reminiscent of the early August sell-off where you didn’t really need a catalyst. It’s just that you’re at the highs in risky assets,” said Alex Jekov, head of G10 FX strategy at BNP Paribas.
“The dollar is softer versus low-yielding currencies because they are getting a bid from the risk-off environment. But what is different from August is that US rates aren’t participating quite as much. It seems to be mainly an equities story.”
The yen strengthened as much as 0.4 per cent to 144.89 per dollar before last trading up about 0.3 per cent at 144.95 as of 1144 GMT, following a 1 per cent rally overnight.
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Dollar/yen hit a multi-month low of 141.68 in early August after a surprisingly weak US payrolls data and an interest rate hike from the Bank of Japan triggered a massive unwind of yen-funded carry trades.
Risks to the US soft-landing scenario – which had been gaining traction in markets – saw traders raise the chances of a 50-basis point Federal Reserve interest rate cut this month to 37 per cent from 30 per cent a day earlier, according to the CME Group’s FedWatch Tool.
Economists surveyed by Reuters expect Friday’s report to show an increase of 165,000 US jobs in August, up from a rise of 114,000 in July.
US markets were closed for the Labor Day holiday on Monday and came back on Tuesday to a weak Institute for Supply Management survey that suggested factory activity in the country would remain subdued for a while.
“That was supposed to show a gain, but actually showed a decline, and has made people wonder once more about the Fed possibly being too late to act,” said Sam Stovall, chief investment strategist at CFRA.
The Swiss franc, another safe haven, strengthened by as much as 0.3 per cent to 0.84735 per dollar before trading nearly flat.
The euro was little changed at US$1.10470, recovering from marginal declines earlier in the session.
Eurozone business activity received a boost from France hosting the Olympic Games last month but the malaise in the bloc is likely to return once the Paralympics wraps up as demand remains weak, a survey showed.
Sterling was also nearly flat at US$1.31125, after weakening 0.2 per cent overnight.
Cryptocurrencies faltered, with Bitcoin and Ether slipping about 2.6 per cent each. REUTERS
