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Headlines
- Safe-Haven Currency Strength: The Japanese yen and Swiss franc have reached multi-month highs against the dollar due to concerns about a potential economic slowdown in the US, which has negatively impacted stocks and bond yields.
- Sterling Decline: The British pound fell to a one-month low following the Bank of England's cautious interest-rate cut decision, reflecting uncertainty about future monetary policy.
- Market Reactions: US Treasury yields fell significantly, and there is increased speculation about potential Federal Reserve rate cuts, while the euro remained under pressure due to dovish remarks from a European Central Bank official.
The Japanese yen and Swiss franc surged to their highest levels in several months against the dollar on Friday, driven by unexpected weakness in US manufacturing. This data has heightened fears of an economic downturn, causing declines in both financial stocks and bond yields. The yen held steady at 149.49 per dollar after peaking at 148.51, its strongest level since mid-March. Similarly, the Swiss franc strengthened by about 0.1% to 0.87225 per dollar, reaching its highest point since early February.
These two currencies were among the few to gain against the dollar, which itself typically benefits from safe-haven flows, even when the source of concern is the US economy. Wall Street experienced a significant selloff on Thursday, a trend that continued in Asia with major indexes like Japan's Nikkei, South Korea's Kospi, and Hong Kong's Hang Seng all showing substantial declines.
US 10-year Treasury yields dropped sharply, falling by 14 basis points to 3.965%, dipping below the 4% mark for the first time in six months. This decline extended into Asian trading hours, with yields hitting a low of 3.944%.
In the wake of the weak manufacturing data, traders have increased their expectations for Federal Reserve rate cuts. The likelihood of a 50-basis-point cut on September 18 has risen to 27.5%, up from 12% the previous day, with markets anticipating further reductions over the remaining meetings of the year.
The US economic outlook will face further scrutiny with the upcoming release of monthly payroll figures. Shinichiro Kadota from Barclays in Tokyo noted that the current rate cut expectations might be excessive, suggesting that if US data stabilizes, it could lead to a rebound in the dollar.
Meanwhile, the British pound fell 0.11% to $1.2721, hitting a new low since early July. The Bank of England, under Governor Andrew Bailey, reduced rates by a quarter-point to 5%, with future cuts expected to proceed cautiously. Economist Colin Asher from Mizuho anticipates gradual strengthening of the pound as the central bank maintains a steady approach.
The euro remained relatively stable at $1.0793, though it reached a three-week low of $1.07775. ECB official Yannis Stournaras highlighted risks of a weak euro zone economy potentially pushing inflation below the 2% target, reinforcing expectations for two rate cuts later in the year.
