Safe-Haven Currencies Firm Amid Wall Street Sell-Off

The Japanese yen and U.S. dollar strengthened while riskier currencies like sterling and the Aussie dollar fell. This reaction follows a significant Wall Street sell-off and soft U.S. manufacturing data, raising fears of an economic hard landing. Traders are now focusing on the upcoming U.S. payrolls report.

The Japanese yen and U.S. dollar remained firm on Wednesday, while riskier currencies like sterling and the Aussie dollar languished as investors sought safety after the worst sell-off in nearly a month on Wall Street.

Soft U.S. manufacturing data, which stoked fears of a hard landing for the economy, was the catalyst. Traders are bracing for crucial monthly payroll data on Friday. The yen strengthened by approximately 0.1% to 145.325 per dollar early in Asia's trading session following a 1% rally against a broadly stronger dollar overnight.

The U.S. currency remained flat at $1.1046 per euro after a 0.26% gain on Tuesday and was steady at $1.3111 against the sterling after a 0.23% rise. The Aussie showed little change at $0.67135 following Tuesday's 1.2% decline.

Traders raised the odds of a 50-basis point Federal Reserve interest rate cut on Sept. 18 to 38% from 30% the previous day, according to the CME Group's FedWatch Tool. Gavin Friend, senior markets strategist at National Australia Bank, noted, 'Markets are nervous ahead of Friday's very important non-farm payroll report, which most market participants acknowledge will be a significant factor in whether the Fed cuts by 25 or 50 basis points.'

U.S. manufacturing activity edged up last month from an eight-month low in July amid employment improvements, yet overall trends pointed to subdued factory activity per Tuesday's data. Economists surveyed by Reuters expect Friday's report to show an increase of 165,000 U.S. jobs in August, up from a rise of 114,000 in July. Job openings data on Wednesday and the jobless claims report on Thursday are also in focus.

(With inputs from agencies.)