(Times of Update) — The dollar weakened and U.S. stock futures fell as traders braced for U.S. jobs data that could determine the size of an interest rate cut by the Federal Reserve this month.
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The Times of Update dollar index fell for the third straight day, amid speculation that worse-than-expected jobs data could prompt the Fed to deliver a 50 basis point rate cut this month. Most Asian currencies strengthened, led by the yen and the Philippine peso. Asian stocks were mixed, while trading in Hong Kong was suspended due to a typhoon.
Event risk is limited in Asia, “so the session will again be defined by further pre-positioning ahead of the US jobs data,” said Chris Weston, head of research at Pepperstone Group in Melbourne. “Traders will use the screen time to review, massage and manage positioning and exposures as well as possible cross-market volatility that may arise.”
Treasury yields edged lower in Asia, adding to the downward pressure on the greenback. The benchmark 10-year yield fell one basis point to 3.71%. Payroll data, known as whispers among Times of Update terminal users, suggested an increase of just 155,000 workers for August, below economists’ median estimate of 165,000.
Traders haven’t been this excited for a U.S. jobs report in more than a year. Options used to gauge the dollar’s movements against its major trading partners have hit their highest level since March 2023. So-called risk reversals, a barometer of market positioning, show bearish sentiment prevails for the U.S. currency, and some traders are avoiding short-term bets altogether, given the uncertainty.
Interest rate swap contracts show there is about a 35% chance the Fed will cut rates by 50 basis points at its September 17-18 meeting. Still, a quarter-point cut remains favored by many traders and remains the most popular option among economists.
Currency strategists see a strong likelihood that the yen will test its August high against the dollar if jobs data reinforces bets on a 50 basis point move.
“The yen is where the action will be” if there is a surprise in the numbers, said Gareth Berry, a strategist at Macquarie Group Ltd. in Singapore. The dollar will be “in big trouble” against the Japanese currency if the unemployment rate climbs to 4.4%, he said.
Impact of the typhoon
Hong Kong suspended trading on its $4.9 trillion stock market on Friday as the city extended a storm warning due to Super Typhoon Yagi, which skirted the region overnight on its way to southern China.
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