USD/JPY dips below 147.50 with the Dollar weighed amid the risk-on mood

US Dollar's recovery against the yen has been halted at 147.80.
Weak US labour data and the US Government shutdown have hammered the US Dollar this week
The Focus today is on September's Final US Services PMIs and Fed Jefferson's speech.

Guillermo Alcala FXStreet

The US Dollar’s rebound against the Japanese Yen has lost momentum during Friday’s European Morning session, as the pair retreated from daily highs at the 147.80 area to levels around 147.30 at the moment of writing.

The pair rallied from two-week lows at 146.55 on late Thursday’s trading and Friday’s Asian session, as comments by DallasFed President Lorie Logan and BoJ Governor Kazuo Ueda dented the Yen-supportive monetary policy divergence.

Markets remain confident on further Fed cuts

On Thursday, the Dallas Fed president Lorie Logan affirmed that the bank needs to be “very cautious” with rate cuts, as inflation keeps trending higher and added that she is not eager to ease monetary policy further.

These comments provided some impetus to the US Dollar’s recovery, which was further underpinned by BoJ Governor Ueda, who warned about global uncertainty and left traders puzzled about the bank’s upcoming monetary policy decisions.

The pair, however, is losing momentum, with investors' hopes that the Fed will cut rates in October and December practically intact. The downbeat employment data seen this week, namely the unexpected decline in the ADP Employment Change, and the US Government shutdown, have endorsed those views.

Investors' focus is now on September’s US services activity figures, that is expected to show moderate growth, although the new orders and employment sub-indexes might muddle the impact of the headline reading. These figures are likely to provide a fresh context to Fed Vice Chair Philip Jefferson’s speech, due later today.

Economic Indicator

ISM Services PMI

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.

Economic Indicator

S&P Global Services PMI

The S&P Global Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector. As the services sector dominates a large part of the economy, the Services PMI is an important indicator gauging the state of overall economic conditions. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for USD.