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The value of the US dollar increased compared to other major currencies in Asian trading. This happened because a strong jobs report in the US led traders to expect higher interest rates for a longer period.
The Australian dollar initially fell but later recovered as a report showed an improvement in services activity in China, a key trading partner. The Chinese yuan also received a boost.
The Canadian dollar remained strong due to a significant increase in crude oil prices.
The US dollar gained support from higher Treasury yields following Friday’s data, which revealed that the number of jobs in the public and private sectors increased by 339,000 in May, surpassing economists’ average forecast of 190,000.
The US dollar rose by 0.11% against the Japanese yen, while 10-year US Treasury yields increased by more than 3 basis points to 3.727% in Tokyo. On Friday, the dollar had rallied 0.84% against the yen.
The euro slipped by 0.04% to $1.0702, continuing its decline from the previous session.
Although the US job growth was stronger than expected in May, wage pressures eased, and the unemployment rate increased from a 53-year low. This may give the Federal Reserve a reason to pause its interest rate hike plans at the upcoming June meeting, as some officials had suggested last week.
However, expectations for a rate hike simply shifted to July, and traders reduced their bets on rate cuts later in the year.
CME Group’s FedWatch tool shows that interest rate traders now give a 1-in-4 chance for a rate hike next week, down from 2-in-3 odds the previous week. For July, the market predicts a 70% chance of rates being at least a quarter point higher than they currently are.
Although there is a possibility of a pause in rate hikes, Bart Wakabayashi, a branch manager at State Street in Tokyo, believes the US dollar will remain strong overall and expects it to reach 142.50 yen, with a potential break to 145.
The Australian dollar remained steady at $0.6605, recovering from earlier losses with the help of evidence indicating China’s recovery from the pandemic. The private-sector Caixin/S&P Global services purchasing managers’ index for May showed growth at a faster pace than the official PMI released the previous week.
The Chinese yuan initially declined but later reversed its course. In offshore trading, the US dollar was 0.03% lower at 7.1074 yuan after briefly gaining 0.15%. It had reached a six-month high at 7.1404 on Thursday.
The Canadian dollar remained strong due to a more than 1% increase in crude oil prices following Saudi Arabia’s announcement of a significant production cut. The US dollar slipped by 0.06% to C$1.34265, nearing a two-week low reached on Friday at C$1.3408.