Central banks lay liquidity trap for stock markets

LONDON – Less money, more problems. Central banks may have unwittingly contributed to the Aug. 5 “mini crash” in global equities by taking USD 200 billion of cash out of the global system in the preceding days. Ratesetters had reasons to do so, but the risk is that liquidity traps could ensnare markets again.

Bad US economic data and margin calls on debt-fuelled bets against the Japanese yen have taken the rap for a brief but sharp summer rout in world stock markets. But something else was going on in the background.

US Fed Chair Jay Powell and his peers use injections or withdrawals of “reserves” – or money they create – to control interest rates, meet banks’ needs for cash, and generally oil the wheels of global finance. Examples of these processes include the quantitative easing programs. They involve creating reserves, boosting the amount of money in the financial system. The reverse, and currently widespread, process known as quantitative tightening, involves destroying that liquidity.

The day before the Aug. 5 crash, central banks in the United States, Europe, Switzerland, Japan and China collectively yanked more than USD 200 billion from the financial system compared to the previous seven days, according to an analysis by Matt King of Satori Insights. Each central bank has different objectives, so the move was likely coincidental rather than coordinated. But the lack of liquidity may have deepened the plight of investors scrambling to raise cash for margin calls. At the very least, the episode underlines stock markets’ vulnerability to the otherwise arcane topic of central banks’ balance-sheet management.

Admittedly, it’s not a perfect relationship. Markets didn’t tank the last time ratesetters sucked an unusually large amount of cash out of the system, back in April. And a broader measure of liquidity compiled by CrossBorder Capital, which also includes private sector credit and bond markets, didn’t show any red flags in early August.

Still, two factors suggest the fragility may reoccur. The first is the size of central banks’ balance sheets, which have grown exponentially since the Fed and others rescued the financial system in the 2008 crisis. The Fed had USD 870 billion-worth of assets back then. It now holds USD 7.1 trillion. The second is investors’ herdlike penchant for following existing market trends. Over the past decade, this “momentum investing” style has been the world’s second-best performing strategy, according to MSCI. That has led to ever-more concentration in popular sector and stocks, which then magnifies losses when the trends reverse.

Since 2008, central banks have repeatedly come to the rescue amid market panics. Recent evidence suggests they may be causing them.

CONTEXT NEWS

The US Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of Japan and the People’s Bank of China, took more than USD 200 bln out of the global financial system on Aug. 4, according to calculations by Satori Insights. A day later, stock markets around the world plummeted, with Japan’s Topix index losing 12% in a single day, while the S&P 500 index closed down 3%.

(Editing by Liam Proud and Streisand Neto)

10-year yields fall to 15-month low, size of Fed rate cut in question

NEW YORK – Benchmark 10-year Treasury yields fell to a 15-month low on Friday before paring back in choppy trading as August’s payrolls report failed to offer a clear signal on the size of an expected Federal Reserve interest rate cut later this month.

Nonfarm payrolls increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July. Economists polled by Reuters had forecast payrolls increasing by 160,000 jobs.

The unemployment rate fell to 4.2%, from 4.3% the prior month.

“The market’s really struggling with this one because it’s really in the middle of what could be used as a justification for either a 25 or 50 basis point rate cut,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

US 10-year Treasury yields were last down 2.5 basis points at 3.708% and earlier fell as low as 3.648%, the lowest since June 2023.

Interest rate-sensitive two-year yields fell 10.6 basis points to 3.646% and reached 3.595%, the lowest since March 2023.

The closely watched yield curve between two- and 10-year notes was at 6 basis points, the steepest since July 2022.

The bond market is pricing in an aggressive path of rate cuts over the coming year and a half, even as many economists see the US avoiding a recession.

Fed funds futures traders are now pricing a 73% chance of a 25 basis point cut at the Fed’s Sept. 17-18 meeting, and a 27% chance of a 50 basis point reduction, according to the CME Group’s FedWatch Tool.

In total 251 basis points of cuts are priced in by the end of 2025.

““The payroll report suggests there is no reason for the Federal Reserve to rush,” said Drew Matus, chief market strategist at MetLife Investment Management in New Jersey. “The labor market is slowing, but at a slow pace, allowing the Fed to move more deliberately in September.”

Some of the underlying details of Friday’s report, including downward revisions of 86,000 jobs gains for the past two months, however, may be a warning that the labor market is not as healthy as hoped.

“We do see the labor market really not just coming into balance, but really starting to cool off quite significantly, which could make the Fed quite nervous,” said TD’s Goldberg.

Fed policymakers on Friday said they are ready to lower interest rates at the US central bank’s meeting in two weeks, with one of them saying he could support back-to-back reductions, or a bigger cut in borrowing costs, should the cooling labor market need support.

The Treasury next week will sell USD 119 billion in coupon-bearing supply, including USD 58 billion in three-year notes on Tuesday, USD 39 billion in 10-year notes on Wednesday and USD 22 billion in 30-year bonds.

(Reporting By Karen Brettell; Additional reporting by Sinéad Carew; Editing by Christina Fincher, Alex Richardson, Jonathan Oatis, and Deepa Babington)

Dollar eases ahead of US payrolls test

NEW YORK – The US dollar eased against most major currencies on Thursday in choppy trading as investors braced for Friday’s US payrolls report, which could shape the path of interest rate cuts from the Federal Reserve.

The dollar has come under pressure in recent sessions as signs of slowing growth in the US economy have lifted the chances of the Fed cutting rates with more urgency.

Fed Chair Jerome Powell last month endorsed an imminent start to interest rate cuts in a nod to concern over a softening in the labor market.

Data on Thursday showed the number of Americans filing new applications for jobless benefits declined last week as layoffs remained low.

The report helped allay fears that the labor market was deteriorating, after data released in the previous session showed US private jobs growth hitting a 3-1/2-years low in August.

Economists surveyed by Reuters expect an increase of 165,000 US jobs in August, up from a rise of 114,000 in July.

“There’s this looming sense that a downturn in the economy is coming, but these latest numbers don’t show that,” Adam Button, chief currency analyst, at Forexlive in Toronto, said.

“I think the market is flip-flopping between 25 and 50 basis points on every data point,” Button said.

Markets are pricing in a 59% chance of a 25 basis points cut when the Fed meets on Sept. 17 and 18, with a 41% probability of a 50 bps cut, the CME FedWatch tool showed. In all, some 100 bps of cuts are priced for the year.

The euro was 0.2% higher against the dollar at USD 1.1106, a one-week high. The Dollar Index, which measures the US currency’s strength against six major peers, was 0.2% lower at 101.08.

Against the Japanese yen, the dollar fell 0.3% to 143.35 yen, a one-month low. Safe haven demand and expectations for imminent rate hikes from the Bank of Japan have helped lift the Japanese currency in recent sessions.

The options market shows traders are preparing for potentially big moves in currencies on Friday. Overnight implied options volatility – a measure of demand for protection – is at its highest since the banking crisis of March 2023 for the euro and at its highest in a year for the yen.

The pound was 0.2% higher at USD 1.31715 on Thursday. The Bank of England meets in two weeks to set monetary policy. Right now, the derivatives market shows traders see very little chance of a rate cut this month, but a quarter-point cut is fully priced in for November.

The Australian dollar reversed earlier losses to trade up 0.1% on the day, drawing support from a still-hawkish Reserve Bank of Australia.

With investors avoiding riskier assets, cryptocurrencies slipped on Thursday. Bitcoin fell 2.6% to USD 56,510 and ether slipped about 2.8% to USD 2,387.

(Reporting by Laura Matthews in New York; Additional reporting by Amanda Cooper and Rae Wee in Singapore; Editing by Sharon Singleton, Alison Williams, Christina Fincher, and Jonathan Oatis)

Gold gains as investors anticipate super-sized Fed rate cut

Gold prices rose to near one-week highs on Thursday, on the back of a weaker US dollar and lower yields after signs of the labor market losing steam led investors to expect a super-sized rate cut from the Federal Reserve this month.

Spot gold was up 0.9% at USD 2,515.93 per ounce by 2:03 p.m. ET (1803 GMT), rising as much as 1.1% earlier in the session. Prices slightly pared gains after the US services sector data.

US gold futures settled 0.7% higher at USD 2,543.10.

US private employers hired the fewest number of workers in 3-1/2-years in August, potentially hinting at a sharp labor market slowdown. This follows data on Wednesday showing a sharp decline in US job openings in July.

After ADP data, there was a gold spike and it really shows “the labor market is in a dire state and there is a lot of concern about it,” said Phillip Streible, chief market strategist at Blue Line Futures.

“The initial claims data didn’t really help either as far as painting a rosy picture for the employment.”

Traders currently see a 59% chance of a 25-basis-point (bp) reduction by the US central bank this month and a 41% chance of a 50-bp cut, according to the CME FedWatch tool.

The Fed needs to cut interest rates to keep the labor market healthy, but it is now down to incoming economic data to determine by how much, San Francisco Fed President Mary Daly said on Wednesday.

Attention turns to the upcoming non-farm payrolls (NFP) report on Friday.

“If the August unemployment rate matches July’s 4.3%, its highest since 2021, that should send gold back towards its record high as markets ramp up bets for a jumbo-sized rate cut,” said Han Tan, chief market analyst at Exinity Group.

Elsewhere, spot silver gained 1.9% to USD 28.82, platinum climbed 2.7% to USD 926.74 and palladium rose 0.9% to USD 942.36.

(Reporting by Anushree Mukherjee and Daksh Grover in Bengaluru, additional reporting by Swati Verma; Editing by Krishna Chandra Eluri and Janane Venkatraman)

Yields fall as ADP jobs gains miss expectations

NEW YORK – US Treasury yields fell and interest rate-sensitive two-year yields reached a 15-month low on Thursday after ADP jobs data showed employers added fewer jobs than anticipated in August, before Friday’s government jobs report.

Private payrolls increased by 99,000 jobs, the smallest gain since January 2021, after rising by a downwardly revised 111,000 in July, the ADP National Employment Report showed.

Economists polled by Reuters had forecast private employment would advance by 145,000 positions.

The report was consistent with a still-solid labor market, said Thomas Simons, senior US economist at Jefferies in New York.

“When you look at slowing payroll growth, slowing job openings, slowing claims, and steady wage growth, that means that the labor market has settled into a better balance that is a good place for most workers,” Simons said.

“I don’t think that we are seeing the early stages of some sort of unraveling or rapid deterioration in the labor market, and unless we do, I still think that the market is pricing in way too much easing from the Fed, whether that be in terms of pace or total number of cuts,” he added.

Traders are pricing in a 41% probability of a 50 basis point cut at the Federal Reserve’s Sept. 17-18 meeting, and 59% odds of a 25 basis point reduction, according to the CME Group’s FedWatch Tool.

The US central bank is also expected to cut rates at each meeting through at least June, with 238 basis points of cuts priced in by the end of 2025.

Interest rate-sensitive two-year note yields were last down 1.6 basis points at 3.754% and earlier reached 3.713%, the lowest since May 2023. Benchmark 10-year note yields fell 3.2 basis points to 3.736% and got as low as 3.721%, the lowest since Aug. 4.

The yield curve between two- and 10-year yields was at minus 2 basis points, after turning positive on Wednesday for the first time since Aug. 5.

Yields have fallen as traders price in the possibility of a US recession even as many economists see the economy avoiding a downturn.

Friday’s jobs report is expected to show that employers added 160,000 jobs during August, up from 114,000 in July, according to the median estimate of economists polled by Reuters. The unemployment rate is anticipated to ease to 4.2%, from 4.3%.

“For the US recession narrative to re-emerge among economists a non-farm payrolls number perhaps below 125k would be needed along with an unemployment rate at 4.3% or higher,” JPMorgan analysts including Nikolaos Panigirtzoglou said in a report on Thursday.

Other data on Thursday showed that the number of Americans filing new applications for jobless benefits declined last week as layoffs remained low.

US services sector activity was also steady in August, though employment gains slowed.

(Reporting By Karen Brettell; Editing by Barbara Lewis and Jonathan Oatis)

Oil prices hold at 14-month low as demand worries offset big US storage withdrawal

NEW YORK – Oil prices held at a 14-month low on Thursday as worries about demand in the US and China and a likely rise in supplies out of Libya offset a big withdrawal from US inventories and a delay to output increases by OPEC+ producers.

Brent futures were down 1 cent to settle at USD 72.69 a barrel, while US West Texas Intermediate (WTI) crude fell 5 cents, or 0.1%, to settle at USD 69.15.

That was the lowest close for Brent since June 2023 for a second day in a row and the lowest close for WTI since December 2023 for a third day in a row.

The US Energy Information Administration said energy firms pulled 6.9 million barrels of crude out of storage during the week ended Aug. 30.

That was much bigger than the draw of 1 million barrels analysts forecast in a Reuters poll, but was in line with the draw of 7.4 million barrels reported by the American Petroleum Institute industry group on Wednesday.

Further support came from discussions between the Organization of the Petroleum Exporting Countries and allies led by Russia, known collectively as OPEC+, about delaying output increases due to start in October.

OPEC+ agreed to delay a planned oil output increase for October and November, and said it could further pause or reverse the hikes if needed.

Analysts at US investment banking firm Jefferies said the OPEC+ decision has the effect of tightening fourth-quarter balances by about 100,000-200,000 barrels per day (bpd) and should be sufficient to prevent material builds even if demand from China does not improve.

Bob Yawger, director of energy futures at Mizuho, however, said the market was not impressed with the OPEC+ news.

“The gasoline market would be capable of cratering crude oil even if the OPEC+ chaos was not leaning on (the) price. If you don’t need the gasoline, you don’t need the crude oil to make gasoline,” Yawger said.

After energy firms added a surprise 0.8 million barrels of gasoline to US stockpiles last week, US gasoline futures RBc1 fell to their lowest close since March 2021.

In Libya, some tankers were being allowed to load crude from the OPEC member’s storage even though output remained curtailed amid a political standoff over the central bank and oil revenue.

CONFLICTING US DATA

The latest US economic data offered some relief about the health of the economy to a market looking for clues about the path of the Federal Reserve interest rate cuts.

The Fed hiked rates aggressively in 2022 and 2023 to tame a surge in inflation, but is widely expected to reduce borrowing costs at its Sept. 17-18 policy meeting. Lower rates can boost economic growth and demand for oil.

US services sector activity was steady in August, but employment gains slowed, remaining consistent with an easing labor market.

Meanwhile, US private job growth hit a 3-1/2-year low in August and data for the prior month was revised lower, potentially hinting at a sharp labor market slowdown.

By contrast, the number of Americans filing new applications for jobless benefits declined last week as layoffs remained low.

“In our view, the ‘Beige Book’ suggests that the economy is already growing at a below-trend pace and that recession risks are rising,” analysts at UBS said in a note, referring to the release on Wednesday of a Fed report that acts as a temperature check on the health of the economy about every six weeks.

(Reporting by Scott DiSavino in New York, Alex Lawler in London, Georgina McCartney in Houston, Trixie Yap in Singapore, and Arunima Kumar from Bengaluru; Editing by David Goodman, Mark Potter, Bill Berkrot, and Paul Simao)

Foreign investors struggle to keep up with India’s rise

SINGAPORE – India’s stock market rally is ramping up its index weighting and creating a dilemma for global fund managers: sit back and watch as their relative exposure shrinks while the market grows, or buy in at increasingly eye-watering prices.

Most find the latter uncomfortably risky and are seeking alternatives, some driving money into India’s smaller companies, while others are looking elsewhere at other emerging markets.

The trend has been driven by years of strong earnings in India at the same time as China’s markets have stumbled, upending their weightings in the MSCI Emerging Markets’ Index which serves as a benchmark for global EM funds.

India’s MSCI EM weight has shot to 19%, up from just 8% four years ago and analysts at Nuvama Alternative & Quantitative Research expect it to top 22% by the end of this year. China’s weighting over the same period has collapsed from 40% to 25%, data from MSCI shows.

“The convergence between India and China is causing problems for a lot of portfolio managers because if you had a global mandate or a pan-Asia mandate, you probably were at best equal weight India and probably underweight,” said Vikas Pershad, portfolio manager for Asian equities at M&G Investments.

“And that underweight is growing.”

Part of the reason for the long-term underweight has been that many investors preferred China’s cheaper and dynamic market, while entry and exit costs for funds can be high in India.

Managers would need to buy Indian companies at a rapid clip to keep up with their increasing presence in indexes, which with an average 12-month price-to-earnings ratio of 24 times for big and middle-sized firms are the most expensive in major markets, according to LSEG data.

Many are choosing not to do so, leaving India the biggest underweight allocation among emerging market funds, according to HSBC and Copley Fund Research.

Valuations for Chinese blue chips, by contrast, are far lower with the same price-to-earnings measure at 17 and at 15 for big Malaysian stocks.

For Gary Tan, portfolio manager at Allspring Global Investments, and his clients, valuations are the sticking point.

“We are optimistic on the long-term story, but really cautious on where valuations are,” said Tan, who has been underweight India for the last couple of years.

NO SECRET

Valuations have long been relatively high in India and no barrier to outperformance. Now, however, some investors are becoming wary of the risk-reward balance.

India’s Nifty 50 index has risen 145% and the S&P BSE Sensex has surged 136% since mid-2020, while the S&P 500 in the same period has gained 78% and China’s blue-chip index has slid 22%.

Yet while foreigners have been consistent buyers of Indian stocks this year and in 2023, the flow and sentiment is beginning to shift.

ICICI Securities data shows foreign buying over the first half of this year has been much higher in small to mid-size firms than in large caps and in August, exchange data showed foreigners turned sellers of USD 662 million in shares.

Foreign investors account for roughly 16% of total Indian stock holdings, according to ICICI Securities, the lowest in a decade.

To be sure, there are plenty of bulls and money that isn’t benchmarked to emerging markets’ indexes that is flowing in.

Howie Schwab, portfolio manager for emerging markets growth at Driehaus Capital, said there’s an increased interest from global investors in India, not just from those with emerging markets mandates.

Vivian Lin Thurston, portfolio manager for William Blair’s emerging markets growth strategy, says valuation alone is not necessarily reason enough to look elsewhere.

“Do I have another attractive opportunity set to put money in if I take down India, the answer is not many at present, and this is a factor I’m struggling with, or grappling with,” she said.

However flows into Malaysia and Indonesia, where markets are on a tear, point to investors looking further afield, for now.

“India’s economic growth story is not a secret,” said James Cook, investment director for global emerging markets at US fund manager Federated Hermes, who is underweight India and waiting for prices to fall before buying any further.

“When you have such a consensus, and the outlook appears to be benign, investors can fall into a trap, blind to any potential pitfalls, such as paying too high a price to participate.”

(Reporting by Ankur Banerjee in Singapore, additional reporting by Gaurav Dogra and Bharath Rajeswaran in Bengaluru; Editing by Tom Westbrook and Shri Navaratnam)

Wall Street ends slightly down after weak labor market data, dovish Fed comments

NEW YORK – US stocks finished slightly lower in choppy trading on Wednesday following labor market data and comments from a Federal Reserve official that bolster the case for an interest rate cut.

Labor Department data showed that US job openings fell to a 3-1/2-year low in July, indicating continued easing of labor market tightness that could strengthen the Fed’s hand to begin cutting rates at its next meeting later this month.

The benchmark S&P 500 and Nasdaq edged to a lower close while the Dow ended slightly higher. Utilities and consumer staples stocks led the gainers while energy and technology equities were the main drag. Six out of 11 S&P 500 sectors ended lower.

“This is always a rocky period in September but the economy is holding up,” said Bill Strazzullo, chief markets strategist at Bell Curve Trading in Boston. “The consumer is fine, the labor market is fine. I’m still bullish overall.”

Shares of Nvidia, which suffered a massive USD 279 billion drop in market value on Tuesday, closed 1.7% lower. Shortly before the close of trading, the company denied a media report that it received a subpoena from the US Department of Justice.

Other megacap growth stocks fell, including Apple which ended 0.9% lower. Microsoft dipped 0.1%, Alphabet dropped 0.5% and Amazon.com slipped 1.7%. Tesla shares rose 4.2%.

Raphael Bostic, Atlanta Fed president, said on Wednesday the central bank must not keep interest rates too high much longer or it risks causing too much harm to employment. He added that waiting until inflation falls back to the Fed’s 2% goal before cutting rates “would risk labor market disruptions that could inflict unnecessary pain and suffering.”

In the previous day’s session, all three Wall Street indexes slumped to their biggest one-day loss since early August as investors dumped technology-related stocks in a dour start to September – which is historically the worst month for equities.

“Utility stocks are up today because of weak data in jobs that just bolsters the case that when the Fed meets in about two weeks they are going to cut rates by at least 25 basis points,” said Eric Beyrich, co-chief investment officer at Sound Income Strategies.

The Dow Jones Industrial Average rose 38.04 points, or 0.09%, to 40,974.97, the S&P 500 lost 8.86 points, or 0.16%, to 5,520.07 and the Nasdaq Composite lost 52.00 points, or 0.30%, to 17,084.30.

The Philadelphia SE Semiconductor index rebounded from its biggest one-day drop since the COVID-19 pandemic in the previous session and ended up 0.25%.

Advanced Micro Devices rose nearly 3% after it named former Nvidia executive Keith Strier as senior vice president of global AI markets.

Zscaler fell nearly 19% after the company forecast fiscal 2025 revenue and profit below estimates. Dollar Tree slumped 22% after the discount store operator trimmed its annual sales and profit forecasts.

Total volume across US exchanges was about 10.5 billion shares, down from a 20-day moving average of nearly 11 billion shares.

(Reporting by Chibuike Oguh in New York; additional reporting by Johann M Cherian, Bansari Mayur Kamdar, and Purvi Agarwal in Bengaluru; Editing by Matthew Lewis)

Yields fall as job openings shrink before Friday’s jobs report

NEW YORK – Treasury yields fell on Wednesday, with interest rate sensitive two-year yields hitting a 15-month trough, after data showed US job openings dropped to a 3-1/2-year low in July.

The closely watched yield curve between two-year and 10-year notes also turned positive for the first time since Aug. 5.

The August jobs report, due out on Friday, may help the Federal Reserve decide at its Sept. 17-18 meeting whether to cut interest rates by 25 or 50 basis points.

“The big event of the week comes in the form of Friday’s payrolls print,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.

“That’s to a large extent going to give us the road map for what to expect from the Fed. The employment data is now overshadowing inflation as the biggest risk to near-term policy expectations.”

Traders increased bets on a larger 50 basis points cut after Wednesday’s jobs openings report. They are now pricing in a 43% chance of a 50 basis point rate reduction, up from 39% before the data, and a 57% chance of a 25 basis points cut, CME Group’s FedWatch Tool showed.

Atlanta Fed President Raphael Bostic said on Wednesday the US central bank must not keep interest rates too high much longer or it risks causing too much harm to employment.

The market may have overreacted to Wednesday’s data, given that the economy is still showing solid growth, said Subadra Rajappa, head of US rates strategy at Societe Generale in New York.

“We don’t really have a lot of information to suggest that a recession is imminent,” Rajappa said. There is “nothing that would warrant the market pricing in such an aggressive path of rate cuts for the next year and a half.”

Traders see 237 basis points of rate cuts likely by the end of 2025.

Two-year note yields were last down 10.5 basis points on the day at 3.783% after hitting 3.772%, the lowest since May 2023.

Benchmark 10-year note yields fell 6.6 basis points to 3.778% after reaching 3.767%, the lowest since Aug. 20.

The yield curve between two- and 10-year Treasuries was at minus 0.70 basis points after reaching positive 0.60 basis points. This shift is a possible warning sign that a recession is approaching.

The 2/10 part of the yield curve has been mostly inverted since July 2022. It briefly turned positive on Aug. 5 before turning negative again.

The inversion, in which longer-dated yields are lower than shorter-dated ones, is typically viewed as foreshadowing a recession within the next 18 months to two years, though the current inversion has lasted longer than in previous episodes.

The curve typically turns positive before an economic downturn as investors price in expected rate cuts by the Fed.

Many analysts and economists, however, see the US economy as likely to weaken but avoid a recession.

Friday’s employment report is expected to show 160,000 new jobs in August, according to the median estimate of economists polled by Reuters. The unemployment rate is anticipated to have eased to 4.2% from 4.3% in July.

US economic activity expanded more slowly from mid-July through late August and businesses reported less hiring, the Fed’s latest Beige Book showed.

(Reporting by Karen Brettell; Editing by Jonathan Oatis and Richard Chang)

Dollar eases as US job openings fall; safe-haven bid lifts yen

NEW YORK – The dollar slipped against most major currencies on Wednesday after July US job openings data signaled a softening labor market, tilting the odds further in favor of larger interest rate cuts by the Federal Reserve.

Traders boosted bets that the Fed will deliver a half-a-percentage-point reduction at its next meeting, following news that job openings in July fell to the lowest level in 3-1/2 years.

Friday’s US payrolls report could offer further clues on the timing and pace of Fed rate cuts.

“The US central bank must not keep interest rates too high much longer or it risks causing too much harm to employment, Atlanta Federal Reserve President Raphael Bostic said on Wednesday.

The dollar index, which measures the US currency’s strength against six major peers, was down 0.3% at 101.4. The dollar slipped 1% to 144.07 yen, a one-week low, as global financial markets generally avoided riskier assets.

US stocks remained weak after Tuesday’s sharp sell-off sparked by concerns about the US economy and tech sector valuations.

Soft US manufacturing data released on Tuesday helped fan worries about a hard landing for the world’s biggest economy.

The dollar, which tumbled more than 2% against a basket of currencies in August, has steadied as rising volatility in global financial markets lifted demand for safer currencies.

“Stock market instability and dropping US yields have made the yen a strong performer,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The dollar index was about 1% above its late August low of 100.51.

“The USD has rebounded but is afraid to rebound any further until it gets more information,” Brad Bechtel, global head of FX at Jefferies, said in a note. “After Friday’s print we’ll either be 100 or lower or 104 or higher in DXY by my reckoning.”

Economists surveyed by Reuters expect Friday’s report to show an increase of 165,000 US jobs in August, after a rise of 114,000 in July.

Investors will also keep a close eye on jobless claims on Thursday.

The euro was 0.2% higher at USD 1.107075, recovering from early marginal declines.

Eurozone business activity received a boost from France hosting the Olympic Games last month but the malaise in the bloc is likely to return once the Paralympics wraps up as demand remains weak, a survey showed.

The Canadian dollar rose 0.3% against its US counterpart after the Bank of Canada cut its key policy rate by 25 basis points to 4.25% as forecast but expressed concern that weaker-than-expected growth might mean inflation falls too quickly.

Sterling rose 0.2% to USD 1.3138 after weakening to a low of USD 1.3101 overnight.

With investors avoiding riskier assets, cryptocurrencies faltered on Tuesday. Bitcoin fell about 1% to USD 57,751 and ether slipped about 0.8% to USD 2,444.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Kevin Buckland and Sruthi Shankar; Editing by Christina Fincher, Alison Williams, Angus MacSwan, and Richard Chang)

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