By Kevin Buckland and Brigid Riley
TOKYO (Reuters) – The dollar hung back from a four-week high against major peers on Friday as investors looked ahead to a key jobs report that could influence the path for U.S. interest rates.
Sterling traded higher after recovering knee-jerk losses following the Bank of England’s decision to downshift to a quarter point rate hike on Thursday.
The yen hovered near the middle of its trading range this week as traders tried to gauge the Bank of Japan’s tolerance for higher yields following last week’s surprise policy tweak. [JP/]
Meanwhile, the Australian dollar strengthened amid a flurry of positive news, from the resolution of a barley standoff with China to new stimulus signals from its key trading partner, and just a generally more positive environment for risk assets.
The U.S. dollar index, which gauges the currency against a basket of six counterparts, edged 0.06% lower to 102.39 in Asia. On Thursday, it had pushed to the highest since July 7 at 102.84 at one point, but lost steam later in the day with the monthly nonfarm payrolls report looming on Friday.
The whisper number for payrolls may be higher than the median forecast among economists for a 200,000 increase for July, following reports this week showing low levels of initial jobless claims and much stronger than expected ADP employment data, Kristina Clifton, an analyst at Commonwealth Bank of Australia (OTC: CMWAY), wrote in a note.
“The implication is the USD may pull back sharply if payrolls print below or even in line with the reported consensus,” she said.
The dollar slipped slightly to 142.40 yen, as long-term Treasury yields – which the currency pair tends to track closely – retreated from Thursday’s nearly nine-month high at 4.198% in Tokyo trading.
Sterling rose 0.19% to $1.27335, after dipping as low as $1.2620 on Thursday for the first time since June 30 after the BoE decision, despite a warning that rates were likely to stay high for some time.
The euro ticked up 0.05% to $1.09545.
“The FX market is not particularly interested in extending positions, particularly in front of the payrolls report,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC: NABZY), noting that the dollar has not extended gains to the degree that might be expected based on the rise in Treasury yields.
At the same time, “unless or until what’s been happening with Treasury yields reverses, there’s no meaningful prospect of dollar-yen coming down here, unless we see a very dramatic deterioration in risk sentiment,” he added.
In terms of the BoE, “the message that rates are not coming down probably anything like as quickly as might be the case in the U.S. or elsewhere is a positive force for sterling, providing that the UK economy can avoid a recession,” Attrill said.
The European Central Bank last week signalled it may take a break at its next meeting in September as inflation continues to fall and growth weakens.
Meanwhile, the Aussie climbed 0.4% to $0.6575, and was earlier up as much as 0.59%, as it continued its recovery from Thursday’s two-month low of $0.6514.
The risk-sensitive currency was buoyed by the end of Chinese anti-dumping and anti-subsidy tariffs on Australian barley imports as the trade partners repair strained ties.
At the same time, Chinese officials on Friday pledged to flexibly use policy tools to ensure reasonably ample liquidity in the banking system, buoying optimism about Beijing’s resolve to shore up the economy.
The Aussie has been sliding since mid-July amid declining commodity prices and China’s ailing post-pandemic recovery.