Dollar hits one-week low ahead of US jobs data; yen squeezed

The dollar hit a one-week low on Thursday as recent economic data supported expectations for quick rate cuts in the US, while the battered yen was little changed against other major currencies.

An unexpected slowdown in US services growth had knocked the dollar lower on Wednesday.

However, for the year so far it remains the best-performing G10 currency as rate cut expectations have been dialled back dramatically over the last few months.

Federal Reserve officials, including US central bank chief Jerome Powell, on Wednesday continued to focus on the need for more debate and data before interest rates are cut, a move financial markets expect to occur in June.

The US dollar index, which measures the US currency against six rivals, was down 0.1 per cent at 104.14 after hitting 104.125, its lowest level since March 26.

It is up 2.8 per cent this year as market expectations for some 150 basis points of 2024 rate cuts have been sliced in half.

“Looking ahead, today’s data calendar is light. The focus will just be on the weekly initial jobless claims data, and these have been wedded to the 210k area for months,” said Chris Turner, head of forex strategy at ING.

“The dollar will move lower if that terminal rate is priced lower,” Turner added, flagging that markets price in rates at around 3.6 per cent in three to four years. “But that will require benign US data – which is far from clear over the next week.”

The major focus for the rest of the week will be on US labour data due on Friday.

Futures pricing for a Fed cut in June was broadly steady and implied markets see about a 60 per cent probability of such a move.

The yen was close to its 34-year low versus the greenback as the Bank of Japan’s historic policy shift to end eight years of negative interest rates failed to bolster the currency.

It was almost flat at 151.68 versus the dollar, after hitting 151.975 last week.

The rates picture, with US 10-year yields at over 4 per cent and the yen’s still close to zero, is keeping big Japanese investors’ cash abroad, where it can earn better returns, depriving the yen of support from repatriation flows.

The yen was supported at 151.70 per dollar by the threat of official intervention.

“Some degree of intervention is arguably necessitated if indeed dollar/yen breaks above (152),” said Mizuho chief economist, Asia ex-Japan, Vishnu Varathan. “If nothing else, to follow through on the warning on grounds of credibility.”

The euro, up 0.6 per cent on Wednesday, was up a further 0.15 per cent on Thursday and back to the middle of a range it has kept for a year at $1.0854.

European inflation came in softer-than-expected on Wednesday, reinforcing expectations for a European rate cut in June.

The Swiss franc dropped around 0.4 per cent against the euro and the dollar after data showed that the consumer price index rose by a lower-than-expected 1.0 per cent from a year ago in March. nS8N3EZ00U

Analysts said the further fall in Swiss inflation in March reinforced the view that the Swiss National Bank would cut rates by an additional 50 basis points this year.

Traders gave a leg up to the Australian and New Zealand dollars in response, sending the Aussie above its 200-day moving average and to a two-week high of $0.6587.

The Aussie is at a five-month high on the New Zealand dollar with traders expecting New Zealand rate cuts beginning in August but Australian rates on hold until November.

The New Zealand dollar has regained a foothold above $0.60 and was last trading 0.5 per cent firmer at $0.6038.

Sterling bought $1.2650 – also in the middle of a range it has kept since December.

Chinese markets were closed for a holiday.