The dollar is strengthening, the Japanese yen is falling after positive US economic data and pressure from Asia.

Clear Signal Market: Dollar Strengthens, Yen Under Pressure

On Thursday trading, USD/JPY continued its upward trend for the third consecutive day, trading at around 157.00, reflecting the US dollar’s strength supported by excellent economic data, which has put continuous selling pressure on the Japanese yen.

Positive Signals from the US Labor Market

Recent data released by the US Department of Labor shows that initial unemployment claims increased slightly to 208,000 for the week ending January 3, below the forecast of 210,000, but still indicating a strong labor market. The four-week moving average decreased to 211,750 from 219,000, boosting investor confidence that the US economy remains robust.

Surprising Trade Balance in a Positive Direction

Another interesting piece of data is the US trade balance for October, which improved more than expected, with the deficit narrowing to only $29.4 billion, below the expected $58.9 billion. This is the smallest deficit since June 2009. Imports fell to their lowest level in 21 months, while exports reached historic highs. These figures support the US dollar’s broad upward movement.

US Dollar Index Moves Up with a Positive Outlook

The US dollar index (DXY), which measures the dollar against a basket of six major currencies, is trading around 98.85 and remains near its highest level this month. Meanwhile, US government bond yields have increased, indicating that investors are more willing to hold dollar assets.

Implications for the Fed and Interest Rate Decisions

The market sentiment suggests that the Federal Reserve can remain patient in lowering interest rates. The CME FedWatch tool shows about an 88% probability that rates will stay unchanged at the January 27-28 meeting. However, the market still anticipates two rate cuts this year. The upcoming non-farm employment report (NFP) due on Friday could determine short-term expectations.

Challenges for the Japanese Yen: Geopolitical Tensions and Soft Data

In Japan, the yen is under pressure from several factors. First, tensions between China and Japan have increased after Beijing announced export restrictions on “dual-use” goods to Japan, citing national security reasons. China has also begun investigating market manipulation regarding imports of dechlorosilan from Japan, a key chemical in semiconductor manufacturing.

Second, Japanese labor data released in November shows weakness, with cash earnings growth increasing by only 0.5% year-over-year, below the expected 2.3%, and decreasing from 2.6%. This makes the yen less attractive to global investors.

Changes in Exchange Rates of the Won and Other Major Currencies

Today, the US dollar was strongest against the New Zealand dollar, with exchange rates of the won and other currencies also changing accordingly. The dollar appreciated against the euro by 0.07%, the British pound by 0.17%, and the Japanese yen by 0.11%. The pound declined against the dollar by 0.17%, while the Swiss franc was the most independent currency.

Summary: Current Exchange Rate Movements

The US dollar’s strength at this time results from a combination of factors, from excellent economic data to perspectives on Federal Reserve policy. The Japanese yen faces pressure from various fronts, including weak labor data and geopolitical tensions with China. Movements in the won and other currency markets continue to reflect disparities in economic strength among different economies occurring in the present.