This week, dollar-yen remained in the ¥157 range while long-term US interest rates stayed in the 5% range, even as weak US employment data led to a period in which expectations for additional rate hikes receded. The Mexican peso also came under stronger downward pressure owing to narrowing interest-rate differentials and rising global interest rates.
This week, the US 10-year Treasury yield remained well above 5%, rising to 5.34% midweek. However, there was no period of a substantial decline in yields following the release of US PCE and employment data, and long-term rates remained high. As a result, dollar-yen stayed in the ¥157 range, leaving factors supporting yen depreciation in place even as expectations for additional rate hikes remained subdued.
The employment report fell short of expectations, with nonfarm payrolls increasing by only 29,000 month on month and the unemployment rate rising to 4.2%. However, against a backdrop of persistently high long-term rates, concerns over supply and demand in the US Treasury market and over fiscal policy and Treasury issuance remained strong, preventing long-term yields from falling fully.
The Mexican peso declined against a backdrop of differences between US interest-rate trends and Banxico's policy stance, as well as higher global interest rates. Dollar-peso rose to around 18 pesos. Banxico left its policy rate unchanged at 6.50%, but narrowing interest-rate differentials and adjustments to peso carry positions progressed.
Equity markets rose as weak employment data increased expectations that additional rate hikes would be avoided, lifting the Nasdaq and other indices. Meanwhile, higher crude oil prices and tight fuel supply-demand conditions continued, with Brent crude remaining above $100. Gold was sold because of high long-term rates, and spot gold traded at approximately $4,140.
Next week, the focus will be on how the US 10-year Treasury yield moves toward the 5% level, the release date of the FOMC minutes, and changes in interest-rate differentials between Japan, the US and Mexico. Movements in the peso and yen will also be watched for the effects of the restructuring of interest-rate differentials.