SINGAPORE, Oct 7 — Japan’s yen fell to its lowest in nearly two months and other major currencies too were grappling with losses early tiday as the dollar extended a rally sparked by Friday’s strong US jobs data and an escalation in the Middle East conflict.

The yen fell marginally to hit 149.10 per dollar, its weakest level since August 16, before paring losses to trade around 148.40. That came on top of a more than 4 per cent decline last week, its biggest weekly percentage decline since early 2009.

The dollar’s gains followed a US jobs report that showed the biggest jump in jobs in six months in September, a drop in the unemployment rate and solid wage rises, all pointing to a resilient economy and forcing markets to reduce pricing for Federal Reserve rate cuts.

"With rate cuts still being the default position, and when married to upbeat earnings expectations and China going hard on liquidity and fiscal, the equity bull case and the US dollar get a shot in the arm,” said Chris Weston, head of research at Australian online broker Pepperstone.

"While geopolitical headlines and the possibility of an energy supply shock remain a continued threat to sentiment, those set long of risk haven’t heard anything significantly market moving through the weekend and head into the new trading week feeling pretty good about the prospect of further upside.”

In latest developments in the Middle East, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip yesterday ahead of the one-year anniversary of the October 7 attacks that sparked its war. Israel’s defence minister also declared all options were open for retaliation against arch-enemy Iran.

Brent crude oil futures were 0.4 per cent lower today, but rose more than 8 per cent last week, the largest weekly gain since early January 2023.

The dollar index measure against major peers was flat. It rose 0.5 per cent on Friday to a seven-week high, logging more than 2 per cent gains for the week, its biggest in two years. The euro stood at US$1.0970 (RM4.70), down 0.06 per cent.

The yen’s underperformance has also to do with last week’s comments from new prime minister, Shigeru Ishiba, that stoked expectations that rate hikes in Japan are further away.

US 10-year Treasury yields were at 3.9711 per cent, just off their highest in two months. Yields dipped early last week when investors bought safe-haven Treasuries after Iran launched more than 180 missiles against Israel in escalating geopolitical tensions.

Market expectations have swung to the extreme for the Federal Reserve to do just a 25 bps cut in November, rather than 50 bps, following the jobs data. They now price in a 98 per cent chance of a quarter point cut, up from 47 per cent a week ago, and a 2 per cent chance of no cut at all, according to CME’s FedWatch tool

"Dollar-yen will be staying around 145-149 in coming weeks due to lower expectations on an outsized cut by the Fed in November and dovish stance of Japan’s PM ahead of the general election on October 27 as long as the Middle East tensions remain subdued,” said Ryota Abe, economist at SMBC in Singapore.

Sterling was also flat around US$1.3122, nursing last week’s 1.9 per cent drop, its steepest fall since early 2023.

Bank of England Chief Economist Huw Pill said on Friday the central bank should move only gradually with cutting interest rates, a day after governor Andrew Bailey was quoted as saying the BoE might move more aggressively to lower borrowing costs.

The New Zealand dollar was up 0.1 per cent at US$0.6166, pausing in a week long decline ahead of a Reserve Bank of New Zealand (RBNZ) policy decision on Wednesday. Expectations are for a big half a percentage point cut, as the central bank continues with an easing it kicked off in August to trim rates from 15-year high levels. — Reuters