As it headed into a crucial monthly U.S. jobs report on Friday, the dollar was on track to end a six-week winning streak against major peers. This data is likely to influence the direction of Federal Reserve policy over the coming months.
After a turbulent week in which overall weak economic data dampened expectations for additional Fed rate hikes, the value of the US dollar fell to a one-week low against the yen. This decline was exacerbated by falling Treasury yields.
Although policymakers at the respective central banks adopted more dovish stances in advance of this month’s policy meetings, the dollar managed to hold onto gains achieved against the euro and sterling over the previous night.
The Chinese yuan gained value elsewhere as the country’s central bank lowered its demand for foreign exchange reserves for the first time in a year.
The U.S. dollar index, which compares the value of the dollar to a basket of six developed-market currencies such as the euro, sterling, and yen, decreased 0.05% on Friday to 103.58, extending this week’s losses to 0.53%.
The path to the nonfarm payrolls report later in the day has been built with a stream of employment and inflation statistics, much of it on the weaker side. As a result, traders have reduced their bets for a rate hike on September 20 to 12% from 18% a week ago, according to the CME Group’s FedWatch tool.
The greatest drop in two-year Treasury yields since mid-March has occurred this week, when they dropped around 20 basis points to 4.86%. These yields are extremely sensitive to rate forecasts.
As a result, the dollar’s value relative to the yen has decreased. It lost 0.7% for the week after falling 0.08% to 145.405 yen on Friday.
Overnight, though, the dollar gained some ground on the euro. Following a Thursday decline of 0.74% that reduced its weekly gain to 0.49%, the euro was little changed at $1.08455.
Data for the eurozone on Thursday indicated that in August, core inflation decreased. After German inflation exceeded estimates in a reading on Wednesday, Ray Attrill, head of foreign-exchange strategy at National Australia Bank, said that anticipation for a “upside surprise” had been growing.
“There’s a little bit of relief there, (which) just had an impact in dampening expectations for a September ECB hike,” he added. “That’s essentially what killed the euro,” said the speaker.
Huw Pill, the chief economist at the Bank of England, also made a point of Thursday’s potential negative effects of tightening policy while reiterating that the institution will “see the job through” to achieve its goal of getting inflation back on track.
According to Attrill, Pill’s remarks “appear consistent with another quarter-point turn of the screw on September 21 but not necessarily thereafter.”
Early attention in Asia was given to the yuan, which rose to its highest level against the dollar since August 11 at 7.2392 before erasing some of those gains. At 7.2574 yuan, the dollar was recently down 0.25 percent.
In a statement posted online, the People’s Bank of China said it would reduce the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% as of September 15 as part of increased measures to support its beleaguered yuan, which fell to an 11-month low at 7.3426 in mid-August.
Bitcoin lost all of its previous week’s gains in the cryptocurrency market, closing at $26,021 as of this writing after falling 5% over the previous night as a result of the Securities and Exchange Commission (SEC) delaying a judgement on whether to approve several applications for spot bitcoin ETFs.
After a U.S. judge found that the SEC erred in rejecting an application by Grayscale Investments to establish such an ETF, which would be the first of its type, bitcoin increased as high as $28,142 on Tuesday.