The dollar faced renewed pressure on Friday as a significant rise in U.S. jobless claims prompted analysts to reevaluate the Federal Reserve’s interest rate strategy. Currently, the dollar index stands at 97.585, marking a departure from a two-day winning streak and signaling a potential second consecutive weekly decline.
Recent data revealed the most substantial weekly jump in jobless claims in four years, overshadowing consumer inflation reports for August. The inflation figures indicated a modest uptick, marking the fastest increase in seven months yet remained in line with market expectations.
Despite the mixed economic signals, investors are predominantly focused on the likelihood of interest rate cuts. Tim Kelleher, head of institutional FX Sales at Commonwealth Bank in Auckland, encapsulated the prevailing sentiment within the market, describing it as being at a “crossroads” with an unclear outlook.
In the bond market, the yield on benchmark 10-year Treasury notes rose slightly to 4.0282%, following a period of declining yields that approached the 4% threshold for the first time since April. Market participants are pricing in a strong likelihood that the Federal Reserve will implement a 25 basis point cut during its upcoming meeting on September 17, as concerns about a softening labor market are currently overshadowing inflation risks.
However, there is a tempered outlook regarding a more aggressive 50 basis point cut next month. According to the CME Group’s FedWatch tool, traders are adjusting their expectations for a gradual easing approach through the end of the year.
In currency trading, the dollar remained steady against the yen at 147.27 yen, following a joint statement from the U.S. and Japanese governments emphasizing that exchange rates should be “market determined.” The joint statement also highlighted concerns over excessive volatility and disorderly fluctuations in exchange rates.
Meanwhile, the euro dipped slightly to $1.1727, reflecting a 0.1% depreciation amidst shifting trader sentiments about future European Central Bank rate adjustments. The ECB recently opted to maintain its key interest rate at 2% for a second consecutive meeting, with President Christine Lagarde asserting that the bank finds itself in a “good place” with more balanced economic risks.
In the Asia-Pacific region, the Australian dollar traded 0.1% higher at $0.6665, holding near a 10-month high, while the New Zealand dollar experienced a marginal decline of 0.1%, settling at $0.5971.
