US dollar retreats before crucial jobs report

4 Apr 2024 , 11:33 AM

While waiting for the most recent U.S. labor market reading, traders saw comments made by Federal Reserve Chair Jerome Powell as encouraging about the possibility of interest rate reduction this year, which kept the dollar below previous peaks on Thursday.

Although the dollar has underperformed this year compared to other G10 currencies, it is still the best-performing currency overall because of the unexpected slowdown in U.S. services growth, which also helped lower expectations and weighed on the currency three months ago.

The possibility of government involvement has recently frozen the yen, so it did not see any respite either. At 151.56, it was essentially unchanged from three weeks prior.

The euro was up 0.6% overnight and back at $1.0837, the middle of a range it has maintained for a year. Expectations for a European rate cut in June were strengthened by Wednesday’s lower-than-expected European inflation data.

Jerome Powell noted in his fair-minded remarks that economic data will serve as a guide for policymakers. His assessment that new data had not altered his overall prognosis, along with his reminder that “the majority of FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year,” were the main points of interest for traders.

Prices for futures were largely stable, and implied markets project a 60% chance of a Fed decrease in June.

As the US dollar fell during the course of the night, the Australian dollar surged above its 200-day moving average and held stable at $0.6568 on Thursday.

With markets anticipating rate cuts in New Zealand starting in August and Australian rates being held until November, the Australian dollar is at a five-month high compared to the New Zealand dollar.

Overnight, the New Zealand currency gained 0.7% against the US dollar to retake the $0.60 mark. It was trading for $0.6013 at the time. Sterling purchased $1.2645, which is likewise inside the range it has maintained since December.

For a holiday, Chinese markets were closed.

The U.S. dollar index was recently at 104.22, up 2.8% this year as market expectations for U.S. rate cuts of more than 160 basis points have been cut in half. On Tuesday, it reached a four-and-a-half-month high of 105.10.

After rising sharply earlier in the week, U.S. Treasury yields decreased marginally over night.

The European Central Bank meeting minutes from last month, along with the PMI data, are expected later on Thursday in Europe. Due on Friday, U.S. labor data will be the main topic of discussion for the remainder of the week.

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