On Monday, global currency markets experienced notable moves amid thin liquidity, with the US Dollar (USD) fading against major peers as US markets remained closed for Labor Day and traders focused on upcoming US inflation data and central bank policy signals [2][3]. The USD/JPY pair traded just above 154.00 after dropping close to two Yen, marking its weakest level in six months. Despite this decline, the Japanese Yen carry trade remained intact, with no evidence of unwinding according to the latest positioning data. The Ministry of Finance was not active in the market, and no official intervention was claimed for Monday's move. Speculators continued to add to Yen shorts, with CFTC data showing non-commercial net shorts widening by 28.9K contracts to 92.2K, totaling 92.2K contracts as of September 1. USD/JPY has fallen roughly six Yen from the September 2 high just above 160.00 [1].
The British Pound (GBP) climbed by over 0.23% against the USD, trading at 1.3541, supported by thin trading conditions and a softer Dollar. The US Dollar Index (DXY) was down 0.29% at 98.87. Market participants are closely watching US inflation prints, as a benign reading could deter the Federal Reserve from raising rates, while a jump in inflation could prompt a hike. Money markets had priced in a 63% chance of a 25-basis-point rate increase by the Fed at the September 15-16 meeting. UK Chancellor Healey's pledge to fiscal discipline and regional investment helped restore credibility in the British bond market [2].
The New Zealand Dollar (NZD) struggled to gain traction, with NZD/USD trading around 0.5880, posting a modest 0.06% decline after two days of gains. Despite the Reserve Bank of New Zealand's (RBNZ) second consecutive rate hike, investors remain cautious about further tightening, limiting NZD's appreciation. The downside in NZD/USD was contained by the hesitant performance of the USD, as attention shifts to upcoming US inflation data. Strong US Nonfarm Payrolls (NFP) increased by 162K in August, well above expectations of 56K, with the unemployment rate steady at 4.1%. Goldman Sachs noted that a benign CPI reading could prevent the Fed from raising rates, even after robust labor market data [3].
Technical analysis across GBP/USD and NZD/USD suggests modest bullish bias for GBP/USD and a neutral, compressed range for NZD/USD, with resistance and support levels closely watched by traders [2][3].
According to [1], swaps indicate a 97% chance of a quarter-point hike from the Bank of Japan (BoJ) on September 18, and a 58% chance from the Federal Reserve on September 16, but the rate differential would remain unchanged at roughly 2.6 percentage points if both hikes occur.
CONCLUSION
Currency markets are reacting to a combination of thin liquidity, robust US payrolls, and uncertainty over upcoming inflation data and central bank policy moves. The US Dollar weakened against the GBP and NZD, while the Yen carry trade remains intact despite recent volatility. Market participants are awaiting US inflation prints, which will be pivotal for the next Federal Reserve rate decision.