Written by Tom Westbrook
SINGAPORE (Reuters) – The dollar weakened on Thursday as traders awaited the latest U.S. labor market data and took reassurance from Federal Reserve Chairman Jerome Powell that interest rate cuts are likely this year. Fixed below recent highs.
An unexpected slowdown in U.S. services growth also supported downward revisions to forecasts and weighed on the dollar, but the dollar has weakened since the start of the year as forecasts were much more modest than three months ago. It remains the best-performing G10 currency.
The yen, which had recently been frozen due to the risk of government intervention, also did not recover much, at 151.56 yen, about the same level as it has been for the past three weeks.
The euro rose 0.6% overnight, returning to $1.0837, the midpoint of the range it has held for a year. European inflation was weaker than expected on Wednesday, reinforcing expectations that Europe will cut interest rates in June.
Jerome Powell gave a balanced statement, noting that policymakers are influenced by economic indicators. Traders said his view that recent data did not change his broad outlook and that “most FOMC participants believe it may be appropriate to begin lowering policy rates at some point this year” We focused on his remark, “I see it as highly sexual.”
“The speech broadly confirms that the Fed is on track to cut rates this year, and the data will determine the timing,” ANZ analysts said. I think there is a high possibility that there will be.”
Futures prices have remained broadly stable, implying that the market sees a roughly 60% chance that the Fed will cut rates in June.
The Australian dollar broke above its 200-day moving average while the US dollar fell overnight and stabilized at US$0.6568 on Thursday.
The Australian dollar is at a five-month high against the New Zealand dollar, and traders expect New Zealand’s interest rate cuts to begin in August, but Australian rates to remain unchanged until November. [AUD/]
The New Zealand dollar rose 0.7% against the US dollar overnight, regaining a foothold above $0.60. The last trade was $0.6013. The pound bought $1.2645, also in the middle of the range it has held since December. [GBP/]
Chinese markets were closed due to the holiday.
The dollar index has risen 2.8% since the beginning of the year, but bottomed out at 104.22 as market expectations for a 160 basis point or more rate cut in the US were cut in half. It hit a 4-1/2-month high of 105.10 on Tuesday.
U.S. Treasury yields, which soared earlier this week, fell slightly overnight. [US/]
PMIs are expected to be released in Europe later on Thursday, similar to the announcements at last month’s European Central Bank meeting. The main focus for the rest of the week will be on Friday’s release of U.S. labor data.
(Reporting by Tom Westbrook; Editing by Christopher Cushing)
