Yen on the move as payrolls brings dollar back to square one

Today’s softish US non-farm payrolls report, combined with Fed Chair Powell’s relatively neutral testimony to Congress earlier in the week, has put an end to the dollar’s strong start to 2024, and suggests to us that the greenback will remain on the back foot in the near term. After its worst week of 2024, the DXY index is just a touch above where it started the year.  A return to the sub-100 level it touched briefly at the end of 2023 is quite plausible in the context of continued robust appetite for risk across markets and growing confidence that the FOMC is on track to start cutting the fed funds rate before too long. However, we continue to think a sustained period of dollar weakness is unlikely, given the US economy still looks in considerably better shape than other major economies. The looming risk of a second Trump administration re-starting the trade wars of 2018-19 may also limit scope for further dollar weakness.