TOKYO/LONDON – The dollar rested below the previous day’s four-week high against major peers on Friday as investors looked ahead to the jobs report due later in the day that could influence the path for U.S. interest rates and recently volatile Treasuries.
Major currencies were all broadly flat on the day with the yen at 142.56 per dollar, the euro at $1.0952, and the pound at $1.2710, just above Thursday’s near five-week low touched briefly after the Bank of England slowed the pace of interest rates hikes to 25 basis points.
This left the dollar index at 102.51.
On Thursday, the index pushed to the highest since July 7 at 102.84, but lost steam later in the day with the monthly nonfarm payrolls report looming.
The report is due at 1230 GMT (0830 EST) and is expected to show U.S. job growth slowed further in July – a Reuters survey of economists predicts nonfarm payrolls increased by 200,000 jobs last month – but with enough momentum to shield the economy from a recession.
READ: US economy likely generated 200,000 new jobs in July, showing more resilience in face of rate hikes
Current market pricing reflects expectations that U.S. interest rates will hold at their current level through to early next year, said Francesco Pesole, FX strategist at ING. There is room for markets to shift either to price in a further hike before year end, or bring forward the first rate cut.
READ: US Fed’s inflation fight enters new phase
As a result, “out-of-consensus NFP prints should trigger sizeable directional moves” in the dollar against other currencies he said.
He added, “elevated volatility in longer-dated yields should see that part of the curve move quite sharply after the release, and continue to be a factor for FX today.”
U.S. long-term Treasury yields hit nine-month highs on Thursday, on the back of a deluge of supply as well as data pointing to further resilience of the US labor market. [US/]
“The FX market is not particularly interested in extending positions, particularly in front of the payrolls report,” said Ray Attrill, head of FX strategy at National Australia Bank, noting that the dollar has not extended gains to the degree that might be expected based on the rise in Treasury yields.
“Unless or until what’s been happening with Treasury yields reverses, there’s no meaningful prospect of dollar-yen coming down here, unless we see a very dramatic deterioration in risk sentiment,” he added.
The yen has been sensitive to higher U.S. yields as the Bank of Japan kept local rates pinned down, and now, after the BOJ’s surprise tweak last week, traders are trying to gauge how high they will let yields rise.
Meanwhile, the Australian dollar climbed 0.2% to $0.6562, and was earlier up as much as 0.59 percent, as it continued its recovery from Thursday’s two-month low of $0.6514.
The risk-sensitive currency was buoyed by the end of Chinese anti-dumping and anti-subsidy tariffs on Australian barley imports as the trade partners repair strained ties.
The Swiss franc, the G10 currency that has gained the most against the dollar this year, slipped.
The dollar was last up 0.3 percent at 0.8768 francs, moving further away from an eight-and-a-half year low of 0.8554 touched in late July.