As markets prepare for US nonfarm payrolls, the dollar's surge stops

6 Oct 2023 , 11:19 AM

The dollar fell on Friday, but traders mainly avoided the currency and U.S. Treasury markets as they waited for potential triggers in the release of U.S. nonfarm payrolls data later in the day.

The eagerly anticipated jobs report on Friday follows a string of strong U.S. economic data that have supported the Federal Reserve’s hawkish messaging of higher rates for longer and driven up the dollar and U.S. Treasury yields.

The dollar index, which earlier in the week reached a high of about 11 months at 107.34, last traded at 106.37, but it has continued to rise for 12 weeks in a row.

There could be fireworks tonight because, at the moment, U.S. Treasury yields and the dollar, in particular, have been quite responsive to favourable data releases coming from the U.S.

The 30-year U.S. Treasury yield last stood at 4.900%, having spiked above 5% earlier in the week for the first time since 2007. A widespread selloff in international government bonds also stabilized on Friday.

The two-year yield last finished at 5.0267%, while the benchmark 10-year Treasury yield at 4.7269%.

Despite data from the Bank of Japan (BOJ) seemed to suggest otherwise, its abrupt but momentary surge of roughly 2% to 147.30 per dollar on Tuesday fueled speculation that Japanese officials may have interfered in the currency market to support the damaged yen.

The euro lost 0.03% to $1.0546 in other trading and was on course to lose 0.25% for the week, extending its losing streak into a 12th week.

As it struggled against the strong dollar, sterling fell 0.03% to $1.2188 and was also on track to lose money for five weeks in a row.

Following the central banks’ respective judgments earlier in the week, the Australian and New Zealand dollars both experienced declines, with the Australian dollar dropping 0.05% to $0.6367 and the New Zealand dollar rising 0.11% to $0.59695.

Both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) held interest rates constant for a fourth consecutive month on Tuesday, in line with expectations, albeit their messages were less hawkish than anticipated.

While the kiwi was forecasting a weekly down of more than 0.5%, the aussie was looking at a weekly decline of more than 1%.

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