The U.S. dollar is facing a potential end to its six-week winning streak against major currency counterparts as it approaches a pivotal monthly U.S. jobs report, which is expected to play a crucial role in shaping Federal Reserve policy decisions in the months ahead.
The dollar experienced a dip to a one-week low against the yen, influenced by declining Treasury yields. This decline comes at the end of a turbulent week marked by soft economic data that tempered expectations of further interest rate hikes by the Federal Reserve.
However, the greenback managed to retain its gains against the euro and sterling following a shift towards dovish stances by policymakers at the European Central Bank and the Bank of England ahead of their respective policy meetings this month.
In another part of the world, the Chinese yuan gained strength after China’s central bank implemented its first reduction in forex reserve requirements in a year.
The U.S. dollar index, which gauges the currency against a basket of six developed-market peers including the euro, sterling, and yen, edged down by 0.05% to 103.58 on Friday. This decline adds to a weekly loss of 0.53%.
A series of employment and inflation reports have set the stage for the release of the nonfarm payrolls report later in the global day. Much of this data has trended weaker, leading traders to reduce their bets on a rate hike by the Federal Reserve on September 20th to 12%, down from 18% just a week ago, according to the CME Group’s FedWatch tool.
Two-year Treasury yields, which are particularly sensitive to rate expectations, have experienced a decline of approximately 20 basis points this week, settling at 4.86%, marking the most significant slide since mid-March. This decline has contributed to the dollar’s losses against the yen, with a 0.08% decrease on Friday, resulting in a weekly loss of 0.7%.
The dollar did regain some ground against the euro overnight, with the single currency remaining relatively stable at $1.08455 after a 0.74% drop on Thursday, narrowing its weekly gain to 0.49%.
Euro-area data released on Thursday revealed a decrease in core inflation for August. Ray Attrill, head of foreign-exchange strategy at National Australia Bank, noted that expectations for an “upside surprise” had been building following better-than-expected German inflation figures earlier in the week, dampening expectations for a September ECB hike.
On the same day, Bank of England chief economist Huw Pill emphasized the potential risks associated with tightening monetary policy on the UK economy, even though he stated that the central bank would “see the job through” in terms of bringing inflation back to its target.
Attrill added, “Pill’s comments appear consistent with another quarter-point rate hike on September 21st, but not necessarily beyond that.”
In Asia, attention turned to the yuan, which surged to its highest level since August 11th at 7.2392 per dollar in offshore trading before retracing some of those gains. As of the latest update, the dollar was 0.25% weaker at 7.2574 yuan.
The People’s Bank of China announced a 200 basis point reduction in the foreign exchange reserve requirement ratio (RRR) to 4%, effective September 15th. This move is part of broader efforts to stabilize the Chinese currency, which had reached an 11-month low at 7.3426 in mid-August.
In the realm of cryptocurrencies, bitcoin reversed all of its weekly gains and was last trading at $26,021 after a 5% overnight drop. This drop followed the Securities and Exchange Commission’s (SEC) decision to delay its verdict on several applications for spot bitcoin exchange-traded funds (ETFs). Bitcoin had surged to as high as $28,142 earlier in the week after a U.S. court ruled against the SEC’s rejection of Grayscale Investments’ ETF application, which would have been the first of its kind.
