The Japanese yen strengthened to around 147.3 per dollar on Tuesday, extending gains from the prior session as the dollar slipped on growing expectations for deeper US Federal Reserve rate cuts. Markets looked ahead to anticipated downward revisions in US employment data covering April 2024 to March 2025, which could underscore that the Fed is lagging in its mandate to maximize employment. Traders currently price in an 89% probability of a 25 basis point cut next week, while some continue to position for a larger 50 basis point move. Domestically, investors weighed the political implications of Prime Minister Shigeru Ishiba’s resignation, which came after escalating rifts within the ruling party and pressure following his national election defeat late last year. The development also coincided with setbacks in Japan’s efforts to secure a trade deal with the US.

The dollar index steadied at 97.4 on Tuesday, lingering near its weakest level in almost seven weeks as mounting concerns over a cooling labor market strengthened expectations for Federal Reserve rate cuts. Investors awaited US benchmark revisions for employment covering April 2024 to March 2025, with economists projecting downward adjustments of up to 800,000 jobs, a signal the Fed may be lagging in its mandate to maximize employment. Attention also turned to two key inflation reports due this week that could shape the next policy decision, with the August producer price index out Wednesday and the consumer price index on Thursday. Markets currently see an 89% chance of a 25 basis point cut at next week’s meeting, while some participants are positioning for a larger 50 basis point move.

The Brazilian real weakened toward 5.43 per US dollar, not far from the one-year high of 5.39 seen on August 12th as investors balanced the currency’s attractive carry trade appeal with rising political. Domestically, focus is on the resumed trial of former President Jair Bolsonaro, with a verdict on his role in the attempted coup expected this week, adding headline risk ahead of election-year budget debates. At the same time, the central bank’s Focus report showed only minor adjustments to exchange-rate forecasts, with end-2025 projections steady near 5.55, limiting expectations of sustained appreciation. Externally, markets are awaiting US inflation data after weak payrolls increased speculation of Fed easing.