Against the Japanese yen, the dollar was trading at 155.615 yen, and the euro was at $1.0776, almost flat after a 0.3% gain overnight
The U.S. dollar stabilised in Asian trading on Friday after losing ground overnight to the euro and sterling following U.S. data which showed further signs of a cooling labour market and hence higher possibility of Fed rate cuts this year.
Against the Japanese yen, the dollar was trading at 155.615 yen, off lows but unable to reclaim Thursday’s 155.95 high. The euro sat at $1.0776, almost flat after a 0.3% advance overnight.
The dollar index was just a tad higher at 105.28.
The dollar’s pull back followed data showing a rise in initial claims for U.S. state unemployment benefits which, coming on top of last week’s weak payrolls report, furthered risk-taking in a market that has been wavering for weeks on when and how much the Fed will cut rates this year.
Besides a light rally in U.S. Treasuries and commodities, most major currencies gained, including a yen that has been hobbled by its low yields and sterling which had seemed vulnerable following a dovish BoE policy review.
Still, analysts cautioned against dragging out the rally.
We note jobless claims are weekly data that can be very volatile from week to week, CBA’s Joseph Capurso stated in a note. It is far too early to conclude the labour market is weakening significantly.
For one, they said, the yen’s low yields and still-yawning chasm between those and U.S. interest rates could tempt speculators to re-test 34-year lows the currency touched last week.
Market players estimate Tokyo spent nearly $60 billion last week to bring the yen back from those lows and Japan’s Finance Minister Shunichi Suzuki repeated his line on the government’s intent to intervene if needed at a regular post-cabinet meeting news conference on Friday.
Intervention may have temporarily stalled dollar-yen’s upward momentum, but participants are clearly buying into this temporary weakness, which will likely cause dollar-yen to pivot near the 155 levels, according to Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments.
Sterling traded at $1.2515. It had advanced 0.2% in the wake of the U.S. data, recovering from a low of $1.2446, its weakest since April 24, after the Bank of England paved the way for an interest rate cut.
The BoE held its benchmark interest rate at a 16-year high of 5.25% on Thursday, as expected, but a second official on the MPC backed a cut, in what was seen as another step towards the bank reducing interest rates.
The BoE’s urgency and willingness to cut ahead of the Fed will continue to weigh on the currency, Goh added.
