The dollar hovered around an eight-week low on Friday, ahead of the release of a crucial U.S. jobs report that could give investors a better idea of when the Federal Reserve might begin to reduce its interest rates.
The euro held on to its overnight gains after the European Central Bank cut rates in a well-prepared move, but offered few clues on the outlook for monetary policy given that inflation is still at – above the lens.
The U.S. dollar index, which tracks the currency’s performance against the euro and five other major rivals, was little changed at 104.12 at 8:45 a.m. GMT, not far from this week’s low of 103. 99, the first time it has fallen below 104 since April 9.
For the week, the index was on track for a 0.54% decline following a series of weaker macroeconomic data that prompted investors to put two quarter Fed rate cuts back on the table points 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 policy meeting next week, but markets are currently pricing in cuts of 50 basis points by the end of December, with the first cut being very probably scheduled for September.
“It’s anyone’s guess, but I think if the numbers are low, bond yields will continue to fall, which will be good news for stocks,” said Kathleen Brooks, director of research at the trading platform XTB.
“But if we get a number of 180, 190, 200 (thousands), which basically indicates an expansion in the labor market, then we could see a turnaround and see the dollar regain some strength,” he said. -she adds.
SOFTENING CYCLE
The euro was little changed at $1.0894, after a gain of around 0.2% in the previous session, when the ECB cut rates by a quarter point to kick off 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.
“The fact of the day is that the ECB was more optimistic than what was announced,” said Gavin Friend, senior market strategist at National Australia Bank.
The President of the ECB, Christine Lagarde, “has been very reluctant to give indications on further easing”, added Mr. Friend.
The British pound, meanwhile, remained stable at $1.27855 on Friday, not far from the week’s high of $1.2828, its highest level since mid-March.
The yen strengthened slightly, leaving the dollar down 0.2% at 155.38 yen, and on track to lose about 1.2% for the week, its biggest weekly decline since late April, when the Japanese monetary authorities intervened in the market to support the yen.
Like the Fed, the Bank of Japan decides its policy next week, and the market expects an imminent reduction in its monthly bond purchases to tighten credit conditions.
However, despite its recent strength, the yen is not far from the 34-year low reached at the end of April, above 160 to the dollar, which prompted the Japanese authorities to spend some 9.8 trillion yen (62, 9 billion dollars) to intervene in the foreign exchange market to support the yen.
The government and the Bank of Japan fear that rising import costs could derail the hoped-for cycle of moderate inflation and steady wage increases.
Japanese Finance Minister Shunichi Suzuki reiterated his readiness to take action against excessive currency fluctuations, but added that moderation was also needed.
“Interventions in the foreign exchange market must be carried out taking into account their necessity and effectiveness,” he said, and “must be carried out with moderation.” ($1 = 155.7200 yen)
