The USDJPY pair has dropped for the fourth consecutive day, with bears approaching the weekly low during early Friday trading. The Yen pair has renewed its intraday bottom, currently sitting at around 133.85. The decline is attributed to the weakness of the US Dollar ahead of the US employment report for April. Japan's holidays have not had an impact on the selling pressure.
The US Dollar Index (DXY) has taken offers, reversing the previous day's corrective bounce off a one-week low near 101.15. The greenback's gauge versus six major currencies reflects the market's conviction that the Federal Reserve (Fed) is well-set for policy pivot. This is especially after mixed US data and Fed meetings. The Fed Fund Futures hint at increasing odds of a rate cut in late 2023.
Preliminary readings of the US Nonfarm Productivity and Unit Labor Cost for the first quarter (Q1) of 2023 have come in mixed. Nonfarm productivity dropped to -2.7% in Q1 from 1.6% prior and -1.8% market forecasts. Meanwhile, the Unit Labor Cost jumped to 6.3% versus 5.5% expected and 3.3% prior. The US Goods and Services Trade Balance improved to $-64.2B from $-70.6B prior and the $-63.3B market forecast. Initial Jobless Claims edged higher to 242K for the week ended on April 28 versus 240K expected and 229K in previous readings.
Apart from the Fed's dovish hike and mixed US data, US banking sector woes join looming default fears to challenge market sentiment and weigh on the USD/JPY price. Recent actions from US policymakers and comments suggesting no immediate fears of a banking crisis have exerted downside pressure on the US Dollar. S&P 500 Futures snap a four-day downtrend with mild gains.
Holidays in Japan and a light calendar elsewhere can restrict USD/JPY moves ahead of the US employment report. However, downbeat expectations from the scheduled data raise fears of a positive surprise and wild US Dollar move to pare weekly losses. Forecasts suggest downbeat prints of the headline US Nonfarm Payrolls (NFP), expected 179K versus 236K prior.
The news of USD/JPY continuing its downtrend is significant for the forex market. Traders will be watching closely as the US employment report for April is released, as this could cause a wild US Dollar move. The mixed preliminary readings of the US Nonfarm Productivity and Unit Labor Cost for Q1, coupled with US banking sector woes, are also affecting market sentiment and weighing on the USD/JPY price. The market's conviction that the Federal Reserve (Fed) is well-set for policy pivot, with increasing odds of a rate cut in late 2023, adds to the uncertainty. Traders will need to keep a close eye on these factors when making forex trading decisions.