The dollar hit its highest level in a month against the yen on Thursday, with the strength of the US jobs market supporting the view that the Federal Reserve does not need to rush to cut interest rates.
The yen came under heavy selling pressure on Wednesday after Japan’s new prime minister said the country was not ready for additional rate hikes, following a meeting with the central bank governor.
The euro found itself close to a three-week low reached in the previous session, after the usually optimistic European Central Bank policy chief Isabel Schnabel took a dovish tone on inflation, strengthening bets on an interest rate cut this month.
The safe-haven U.S. currency saw additional demand Wednesday after Iran launched a salvo of some 180 ballistic missiles toward Israel, sparking vows of retaliation and reigniting fears of total war.
The dollar index, which measures the currency against the euro, yen and four other rivals, rose to 101.70 at 0023 GMT, a three-week high, extending a 0.45% rise from the previous session.
The ADP National Employment Report showed Wednesday that U.S. private payrolls rose by a more-than-expected 143,000 jobs last month, raising expectations for a strong reading for potentially crucial monthly nonfarm payrolls figures on Friday.
Currently, traders have a 34.6% chance of securing another 50 basis point cut in US interest rates on November 7, after the Fed begins its easing cycle with a large cut on last month. That’s down from a 36.8% chance a day earlier and a 57.4% chance a week ago, according to the CME Group’s FedWatch tool, but it still seems too high, according to Ray Attrill , head of foreign exchange strategy at National Australia Bank.
Although the ADP report is often a poor predictor of nonfarm payrolls numbers, Wednesday’s data “reduces the chances of a significant drop in employment numbers,” Mr. Attrill said.
“I think if the jobs report is not too bad tomorrow night, then we will see the price (for a 50 basis point cut) increase significantly.
The dollar added 0.09% to 146.575 yen after hitting 146.885 for the first time since September 3.
Asahi Noguchi, the Bank of Japan policy chief who opposed the rate hike in July, will deliver a speech later today.
The euro was little changed at $1.10455, not far from Wednesday’s low of $1.10325, a level last seen on September 12.
The British pound remained stable at $1.3261.
The Australian dollar remained stable at $0.6884.
Risk-sensitive currencies were sold off on Wednesday in the initial reaction to Iran’s offensive, but there have been few signs of retaliation from Israel so far, allowing traders to regain their balance.
“Markets are inherently bad at trying to price flight risk,” National Australia Bank’s Mr Attrill said.
“These events are things that the markets manage as they happen, he added. “The markets are aware of them, but I think they stick to their knitting, it that is, they focus on economic fundamentals.
