The US Dollar experienced broad-based weakness on Thursday, driven by a combination of softer US labor market data, a sharp rally in the Japanese Yen (JPY), and stronger-than-expected Swiss inflation data. The USD/CHF pair fell around 0.75% to 0.8070, after reaching a recent high of 0.8156, as the Swiss Franc (CHF) drew support from headline CPI rising to 0.8% year-over-year in August (consensus: 0.5%, previous: 0.4%), the highest since September 2024 and above the Swiss National Bank’s Q3 forecast of 0.6% [1]. Core CPI also surprised to the upside at 0.4% y/y (consensus: 0.3%) [1]. Despite this, analysts at Brown Brothers Harriman noted that CHF remains the worst-performing G10 currency this quarter, citing the prevailing rate backdrop as a headwind, with the swaps curve fully pricing in a first 25bps hike only in June 2027 [1].
The Japanese Yen surged for the second consecutive day, with GBP/JPY dropping around 1.60% to 210.60, its lowest in a month, and USD/JPY falling sharply after briefly breaching the 160 level [4]. This move was fueled by speculation of Bank of Japan (BoJ) intervention and hawkish comments from BoJ board member Hajime Takata, who advocated for a more nimble approach to rate hikes and consideration of a broad range of options [4]. Traders have now fully priced in a rate hike at the BoJ’s September 16-17 meeting [4]. Japan’s top currency diplomat Atsushi Mimura stated that authorities remain ready on forex, though he declined to confirm any rate checks [4].
US labor market data contributed to the Greenback’s decline. Initial Jobless Claims rose to 206K for the week ending August 29 (forecast: 205K, previous: 204K), with the four-week moving average up by 1.5K to 207.25K and Continuing Jobless Claims increasing by 8K to 1.779M for the week ending August 22 [1][2][3]. The US Dollar Index (DXY) retreated to near 99.00, a multi-day low, after peaking at 99.86 on Wednesday [1][2][3]. Dovish comments from Fed Governor Christopher Waller, who said he is “finally seeing some signs of disinflation” and would support keeping rates unchanged if August data confirm recent progress, kept traders cautious about a September rate hike [1]. According to the CME FedWatch Tool, traders are pricing in around a 60% chance of a rate hike at the Fed’s September 15-16 meeting [1].
Elsewhere, the Australian Dollar (AUD) and Pound Sterling (GBP) also saw notable moves. AUD/USD rose 0.45% to 0.7215, benefiting from US Dollar weakness and despite a narrowing Australian trade surplus and mixed Chinese PMI data [2]. GBP/JPY fell sharply, with the Pound showing little reaction to improved UK Services PMI data, which rose to 52.5 in August from 52.1 in July [4]. S&P Global’s Tim Moore noted increased optimism among UK service providers, though growth projections remain subdued due to inflation and geopolitical concerns [4].
Strategists at Societe Generale suggested that the Yen may be poised for a turnaround if the BoJ steps up tightening and bond repatriation flows increase, but cautioned that the Fed’s next move and bond spreads will be key [4].
CONCLUSION
The US Dollar came under significant pressure as softer labor data, dovish Fed commentary, and strong rallies in the Yen and Swiss Franc shifted market sentiment. The prospect of a BoJ rate hike and a Swiss inflation surprise drove sharp currency moves, while the Fed’s next steps remain in focus. Market participants are closely watching upcoming central bank meetings and inflation data for further direction.