Dollar weakens after US weekly jobless claims touch 8-month high

10 May 2024 , 10:40 AM

Following its overnight losses against the euro and pound due to U.S. data indicating further symptoms of a cooling labor market and, consequently, increased possibilities of Fed rate reduction this year, the U.S. dollar had a soft tone in early Asian trade on Friday.

The dollar was trading at 155.39 yen against the Japanese yen, down from highs of 155.95 reached during the previous session. The euro gained 0.3% over night and was now trading at $1.0782.

The dollar index, which compares the value of the US dollar to a group of currencies that includes the euro and the yen, remained unchanged at 105.25.

The dollar’s decline came after data revealed a spike in initial claims for state unemployment benefits in the United States. This, combined with last week’s disappointing payrolls report, increased risk-taking in a market that has been unsure for weeks about the timing and magnitude of the Federal Reserve’s rate drop this year.

The majority of major currencies increased, including the yen, which has been hurt by its low yields, and sterling, which looked vulnerable following the dovish Bank of England policy review. This was coupled with a modest rebound in commodities and U.S. Treasuries Analysts advised against prolonging the rally, though.

At a customary news conference held after the cabinet meeting on Friday, Japan’s Finance Minister Shunichi Suzuki reiterated the government’s intention to interfere if necessary. Market participants estimate Tokyo spent about $60 billion last week to bring the yen back from those lows.

The price of silver was $1.2525. It recovered from a low of $1.2446, its weakest since April 24, by 0.2% in the wake of the U.S. data.

As anticipated, the Bank of England maintained its benchmark interest rate on Thursday at a 16-year high of 5.25%. However, in a move that was perceived as another step in the bank’s direction to decrease interest rates, a second member of the Monetary Policy Committee supported a cut.

On Thursday, U.S. Treasury rates decreased as investors expressed relief that this week’s $125 billion in fresh supply of notes and bonds was handled without incident. The 10-year yield dropped down almost 28 basis points in the last two weeks, to 4.46%, from 4.52% on Thursday.

The U.S. producer pricing index (PPI) for April and the consumer price index (CPI), which are released the following week, will be widely watched by traders for indications that inflation has started to decline again in the direction of the Fed’s 2% target rate.

According to the Federal Register on Thursday, the U.S. administration added 37 Chinese companies to a list of entities subject to trade restrictions for “acting contrary to the national security or foreign policy interests of the United States,” marking a recent but predictable development in the long-running Sino-U.S. trade spat.

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