By Vidya Ranganathan

SINGAPORE (Reuters) – Currency Movements Amid Economic Data and Geopolitical Tensions

Japan’s yen fell to its lowest in nearly two months, and other major currencies faced losses on Monday as the dollar continued its rally following strong U.S. jobs data and escalating Middle East conflict.

The yen declined to 149.10, marking its weakest level since August 16. This came after a more than 4% fall last week, the largest weekly percentage drop since early 2009.

The dollar’s gains were supported by a U.S. jobs report showing the most significant increase in jobs in six months for September, a drop in the unemployment rate, and solid wage increases, indicating a resilient economy. This forced the markets to reassess expectations regarding Federal Reserve rate cuts.

“With rate cuts still being the default position, and when married to upbeat earnings expectations and China going hard on liquidity and fiscal, the equity bull case and the U.S. dollar get a shot in the arm,” remarked Chris Weston, head of research at Australian online broker Pepperstone.

However, geopolitical tensions and potential energy supply shocks continue to pose sentiment risks, though market players heading into the new trading week felt optimistic about further gains.

In the Middle East, Israel targeted Hezbollah positions in Lebanon and the Gaza Strip on Sunday, coinciding with the one-year anniversary of the October 7 attacks that initiated its ongoing conflict. Israel’s defense minister stated that all options regarding retaliation against Iran remained on the table.

Meanwhile, Brent crude oil futures dipped 0.7% on Monday but rose more than 8% last week, marking the largest weekly gain since January 2023.

The dollar index against major rivals stabilized, having risen 0.5% on Friday to a seven-week high, securing over 2% gains for the week, its most substantial increase in two years. The euro traded at $1.0970, down 0.06%.

The yen’s decline is attributed partly to comments from new Prime Minister Shigeru Ishiba, heightening expectations that rate hikes in Japan will be postponed further.

U.S. 10-year Treasury yields edged up a basis point to 3.9905%, their highest in nearly two months. Yields had dropped earlier last week as investors sought safe-haven Treasuries following Iran’s missile launches against Israel amid rising geopolitical tensions.

Market expectations have shifted significantly regarding the Federal Reserve, now anticipating a mere 25 basis point cut in November, contrary to a previous expectation of a 50 basis point cut. The current pricing indicates a 95% likelihood of a quarter-point cut, up from 65% mid-last week, with a mere 5% chance of no cut at all, as per CME’s FedWatch tool.

Sterling remained unchanged around $1.3122, recovering from last week’s 1.9% drop, the steepest since early 2023. Bank of England Chief Economist Huw Pill emphasized the importance of a gradual approach to interest rate cuts, following comments from Governor Andrew Bailey about potentially more aggressive cuts to borrowing costs.