The U.S. dollar experienced significant losses on Tuesday as it awaited a series of economic data that will influence the trajectory of interest rates, while the yen maintained its gains following Prime Minister Sanae Takaichi’s decisive election victory. Sterling maintained stability during the early hours of the Asian market following a turbulent Monday, as investors assessed the challenges confronting Prime Minister Keir Starmer and the increasing speculation regarding additional rate cuts. It last fetched $1.3682 after an increase of 0.6% in the prior session. The Japanese yen stood at 155.85 against the U.S. dollar, maintaining its overnight gains with a firm increase of 0.8%. On Monday, verbal warnings from authorities contributed to the strengthening of the yen, following a period of weakness in response to Takaichi’s victory. Experts anticipate a long-term depreciation of the yen, highlighting that attention will soon shift to Takaichi’s fiscal strategies. The yen has depreciated by 6% since she assumed leadership of the LDP in October. “With fiscal policy set to loosen further under a bolder Takaichi administration, I think dollar-yen will ultimately resume strengthening, and we continue to forecast dollar-yen to increase to 164 by year-end,” said Carol Kong.

Although the yen had recovered some of its recent declines against various currencies, on Tuesday it resumed a downward trajectory against the Swiss franc and the euro. “For a more sustained move lower, markets will want reassurance that fiscal policy will not become overly loose,” strategists stated in a note. A stronger, more assertive stance from the BoJ could be essential to stabilize expectations and facilitate a more sustained decrease in USDJPY.
The euro experienced a slight decline to $1.19 following a 0.85% increase on Monday. The dollar index, which assesses the U.S. currency relative to six other currencies, stood at 96.952, remaining close to a one-week low.
Reports indicate that China has advised local banks to reduce their holdings in U.S. Treasuries, which has contributed to a decline in the dollar’s strength.

This week, investors will concentrate on the monthly reports regarding U.S. employment and consumer prices, which were delayed slightly due to the recent three-day government shutdown. On Monday, Kevin Hassett, an economic adviser to the White House, indicated that U.S. job gains may experience a decline in the upcoming months, attributing this to a slowdown in labor force growth and an increase in productivity. Investors are evaluating if the recent softening in the labor market has come to a halt. “Markets will be squarely focused on a number of key U.S. data releases, including payrolls tomorrow and CPI later,” said Kong, adding that the bank sees pressure on the dollar persisting as it is forecasting below-consensus payrolls.

The upcoming nonfarm payrolls report for January, scheduled for release on Wednesday, is anticipated to reflect a rise of 70,000 jobs, as indicated. Market participants continue to anticipate two rate cuts from the Federal Reserve this year, with the initial cut projected for June. However, there is a palpable sense of uncertainty as the markets await a possible change in U.S. policy direction following the nomination of Kevin Warsh to take over from Jerome Powell as Fed chair. The Australian dollar experienced a decline of 0.2%, settling at $0.7079, while the New Zealand dollar also decreased by 0.2%, reaching $0.6045.