The dollar remained near an eight-week low on Friday, ahead of the release of a crucial U.S. jobs report that is expected to provide clues on the timing of Federal Reserve interest rate cuts .
The euro held on to overnight gains after the European Central Bank cut rates in a well-prepared move, but offered few clues of future easing as persistent inflation clouds the outlook.
The U.S. dollar index, which tracks the currency’s performance against the euro and five other major rivals, was little changed at 104.13 at the start of the Asian day, not far from the lowest level of this week of 103.99, the first time it has fallen below 104 since April 9.
For the week, the index was on track for a 0.5% decline following a series of weaker macroeconomic data that put two quarter-of-a-year Fed rate cuts back on the table. point for this year.
Traders therefore positioned themselves for a weaker nonfarm payrolls report later in the day, with the possibility that employment growth could fall short of economists’ median forecast of 185,000.
The Federal Open Market Committee is not expected to make any changes at its meeting next week, but markets are currently pricing in cuts of 50 basis points by the end of December, with the first cut most likely scheduled for September.
“We expect the overall message from the non-farm payrolls report to be one of strength, albeit in decline,” wrote Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, in a note to customers.
“We wouldn’t characterize the U.S. labor market as weak — strong, rather than hot, would be more accurate,” he added. “Therefore, market pricing for the first FOMC rate cut in September could be pushed back, which would support a modest increase in the dollar.”
The euro was stable at $1.0889, after a gain of around 0.2% in the previous session, when the ECB cut rates by a quarter point to start its easing cycle. However, staff also raised their forecast for inflation, which is now expected to remain above the central bank’s 2% target until the end of next year.
Meanwhile, the British pound was also little changed at $1.2792, sitting not far from the week’s high of $1.2828, the highest level since mid-March.
The dollar strengthened slightly to 155.85 yen, but remained on track for a loss of nearly 1% for the week.
The Bank of Japan will also decide its policy next week, and the market expects an imminent reduction in the monetary authority’s monthly purchases of government bonds.
