The dollar hovered near eight-week lows on Friday ahead of a crucial U.S. jobs report that could give investors a better idea of when the Federal Reserve might start cutting interest rates.
The euro held on to overnight gains after the European Central Bank cut rates in a well-telegraphed move, but offered few clues about the outlook for monetary policy as inflation remains above target.
The US dollar index, which tracks the currency against the euro and five other major rivals, was little changed at 104.12 as of 0845 GMT, not far from this week’s low of 103.99, the first time it has broke below 104 since April 9.
For the week, the index was headed for a 0.54% decline following a run of weaker macroeconomic data that led investors to put two quarter-point Fed rate cuts back on the table for this week. anus.
This has traders positioned to wait for a weaker non-farm payrolls report later in the day, with the possibility that employment growth will be below the average of 185,000 expected by economists.
The Federal Open Market Committee is not expected to make any changes at its policy meeting next week, but markets are currently pricing in 50 basis points of cuts by the end of December, with the first cut most likely in September.
“It’s anyone’s guess, but I think if we get a weak number, we’re going to see further declines in bond yields, which will be good news for stocks,” said Kathleen Brooks, director of research at trading platform XTB. .
“But if we get something at the 180, 190, 200 (thousands) level, something that is basically indicating expansion in the labor market, then we could see a little bit of that turn and the dollar gaining some strength,” he said.
FLEXIBILIZATION CYCLE
The euro was little changed at $1.0894, after rising around 0.2% in the previous session, when the ECB lowered rates by a quarter point to begin its easing cycle. However, staff also raised their forecasts for inflation, which is now expected to remain above the central bank’s 2% target until the end of next year.
“On the day, the fact is that the ECB was more hawkish than the dominant narrative,” said Gavin Friend, senior markets strategist at National Australia Bank.
ECB President Christine Lagarde “was very reluctant to give any guidance on further easing,” Friend added.
Sterling, meanwhile, was flat at $1.27855 on Friday, not far from the week’s high of $1.2828, its highest level since mid-March.
The yen strengthened modestly, leaving the dollar 0.2% lower at 155.38 yen and on track for a loss of around 1.2% for the week, its biggest weekly drop since late April, time in which the Japanese monetary authorities intervened in the market to support the yen.
Like the Fed, the Bank of Japan will decide its policy next week, and consensus is building in the market about an imminent reduction in its monthly bond purchases as a means of tightening credit conditions.
However, despite the recent firmness, the yen is still not far from a 34-year low beyond 160 per dollar reached in late April, which led Japanese authorities to spend some 9.8 trillion yen (62.9 billion of dollars) intervening in the currency market to sustain it.
Both the government and the BOJ are concerned that rising import costs will derail an expected cycle of moderate inflation and steady wage rises.
Japanese Finance Minister Shunichi Suzuki reiterated his readiness to take action against excessive currency swings, but added that moderation was also necessary.
“Intervention in the foreign exchange market should be done taking into account its necessity and effectiveness,” he said, and “should be carried out in a measured manner.” ($1 = 155.7200 yen)
