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Dollar retreats from highs; more labor market data in focus

Published 04/04/2024, 10:38
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Investing.com - The U.S. dollar fell to a one-week low Thursday, handing back some of its recent gains amid uncertainty over the path of U.S. interest rates and ahead of the release of more labor market data.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.855, retreating from the five-month high of 105.10 seen earlier this week.

Uncertainty over Fed's cutting plan

Fed chief Jerome Powell, in a speech to the Stanford Graduate School of Business on Wednesday, made it clear that the U.S. central bank was still studying data before starting to cut interest rates.

An unexpected slowdown in U.S. services growth but stronger than expected private sector jobs growth created uncertainty on Wednesday.

There’s more data to digest Thursday, including the weekly initial jobless claims, but it’s Friday’s widely-watched official monthly payrolls report that will attract the most attention.

Before Friday’s data, the focus is also on addresses by other members of the Fed’s rate-setting committee. FOMC members Michelle Bowman and Thomas Barkin are set to speak at separate events later on Thursday.. 

“Currently, markets price 72bp of Fed easing this year and a terminal rate for the easing cycle in three to four years' time at around the 3.60% area,” said analysts at ING, in a note. 

“That terminal rate seems quite high and was priced at 3.00% last December. The dollar will move lower if that terminal rate is priced lower. But that will require benign US data – which is far from clear over the next week.” 

Sterling, euro slump

In Europe, EUR/USD rose 0.2% to 1.0858, helped by data showing eurozone business activity expanded last month for the first time since May 2023.

HCOB's composite Purchasing Managers' Index for the eurozone, compiled by S&P Global, climbed to 50.3 in March from February's 49.2, improving on a preliminary 49.9 estimate.

That said, European inflation came in softer-than-expected on Wednesday, reinforcing expectations for a European Central Bank rate cut in June.

GBP/USD rose 0.1% to 1.2578, after activity data suggested Britain's economy was on track to exit recession when official first-quarter growth data is next published.

The S&P Global Composite Purchasing Managers' Index - which covers private-sector services and manufacturing firms - edged down to 52.8 in March from February's 53.0, but remained firmly above the 50 level which separates contraction from expansion.

USD/JPY close to key 152 level

USD/JPY edged higher at 151.75, remaining close to the levels last seen in 1990, with traders on edge over any potential government intervention in currency markets. 

A slew of top Japanese officials had warned markets over speculating against the yen, and that they would not rule out any measures to bring down the pair.

USD/CNY edged higher to 7.2337, remaining above the closely-watched 7.2 level with sentiment towards the yuan still fragile.

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