On Friday, the dollar surged towards a 12-week winning run, but it generally traded in a range as investors awaited information on U.S. nonfarm payrolls later in the day to determine whether the Federal Reserve’s hawkish rhetoric on interest rates will need to be adjusted.
The dollar index, which earlier in the week reached a high of about 11 months at 107.34, last closed at 106.43, but it was still on course to post gains for 12 weeks in a row. It reached this milestone the last time in 2014.
The dollar was also on track to set a record winning streak of 12 consecutive weeks when compared to the euro.
The euro last traded at $1.0541, down 0.07%.
The closely anticipated US jobs report on Friday follows a string of solid economic statistics that have supported the Fed’s rhetoric of higher rates for longer and driven up the dollar and US Treasury yields.
“There’s an element here of just taking stock ahead of what should be a very important data release,” said Rodrigo Catril, senior FX strategist at National Australia Bank.
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 4.8836%, having spiked above 5% earlier in the week for the first time since 2007. A widespread selloff in international government bonds also calmed on Friday.
Bond yields and price movements are opposite.
The two-year yield remained constant at 5.0244%, while the benchmark 10-year Treasury yield recently stood at 4.7151%.
The yen, which last traded at 148.73 per dollar, received a much-needed relief from the dollar’s rise on Friday.
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.
According to Vishnu Varathan, head of economics and strategy at Mizuho Bank, “whether the BOJ and/or (Ministry of Finance) will intervene at distinct levels… will continue to be a tease, dependent on broader currency markets and momentum.”
Although thresholds may be teased out by currency traders, they should be cautioned to do so.
Sterling fell 0.09% to $1.21805 in other trading and was on pace to lose money for five weeks in a row due to the strong dollar.
According to Thierry Wizman, global FX and interest rates strategist at Macquarie, “the backdrop remains one in which the Fed is sticking its hawkish neck out much further than the European Central Bank, Bank of England, Reserve Bank of Australia (and) the BOJ.”
As a result of the central banks’ respective judgements, the Australian dollar dropped 0.02% to $0.6369 and the New Zealand dollar dropped 0.04% to $0.59605 earlier in the week.
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 decline of more than 0.6%, the aussie was looking at a weekly decline of more than 1%.