Jobs data pressures the dollar
The U.S. dollar weakened Friday and moved toward its largest weekly loss in 12 weeks after a softer U.S. employment report reduced expectations for a near-term Federal Reserve rate hike.
The shift in rate expectations also gave some relief to the Japanese yen, which had recently fallen to a 40-year low.
Euro and sterling gain ground
Broad dollar weakness lifted the euro close to a two-week high at $1.1472.
The single currency was up 0.6% for the week.
Sterling rose to $1.3380, putting it on track for a 1.2% weekly gain, its strongest weekly performance in almost three months.
Yen recovers but tension remains
The yen strengthened back beyond 161 per dollar after a sudden move Thursday pulled it away from a 40-year low of 162.84.
Even with the recovery, investors remained alert to the possibility of Japanese intervention in the currency market.
Payroll slowdown changes Fed pricing
The dollar came under pressure after U.S. job growth slowed sharply in June and payroll gains for the previous two months were revised lower.
The data led traders to reduce bets on a near-term Fed rate increase.
Markets are now pricing in about a 35% chance of a September hike, according to LSEG data, down from 55% before the employment report.
Treasury yields retreat
U.S. Treasury yields also moved lower after the jobs data.
The yield on the interest-rate-sensitive two-year note fell 4 basis points, ending a three-day run of gains.
That move reflected a reassessment of how aggressively the Fed may need to tighten policy in the months ahead.
Analysts see room for more dollar weakness
Karl Steiner, head of analysis at SEB, said the weaker dollar move aligned with his team’s expectations.
“We don’t have a hike in our forecast, so this was in line with our views that we would get a turnaround here eventually and a weaker dollar,” Steiner said. “I wouldn’t be surprised if we see some more downside.”
The dollar index fell around 0.3% to 100.68 after dropping 0.5% on Thursday.
For the week, the index was down 0.7%, its steepest weekly decline since early April.
Holiday trading raises intervention concern
U.S. markets were closed for Independence Day, leaving trading conditions thinner than usual.
That kept investors focused on whether Japan could use lower liquidity to intervene in support of the yen.
“You have to have it on the radar,” Steiner said, referring to possible intervention. “Historically they have preferred to do it whenever there is lower liquidity.”
Japan warns currency markets again
Japan issued a fresh warning on Friday as Finance Minister Satsuki Katayama said Tokyo remained in regular contact with Washington on foreign exchange issues.
Katayama also said Japan was ready to support the yen.
Chief Cabinet Secretary Minoru Kihara said officials were monitoring market moves with a high sense of urgency.
Speculators face greater risk
Markets are watching whether Japanese authorities are shifting away from their usual habit of signaling intervention risk in advance.
Some investors believe Tokyo may instead pursue a more targeted effort to pressure speculators and make bets against the yen more expensive.
Dollar-yen outlook depends on data
Tony Sycamore, analyst at IG, said the yen’s rebound has made the 162.83 area a short-term top for dollar-yen.
“The bigger question is what comes next,” Sycamore said.
He added that whether the level becomes a more durable medium-term high will depend on incoming U.S. data and, to some extent, developments in the Japanese government bond market.
