Written by Tom Westbrook
SINGAPORE (Reuters) – The dollar headed for its steepest weekly decline this year on Friday, as Federal Reserve Chairman Jerome Powell expressed confidence in cutting interest rates in the coming months, while expectations of a rate hike in Japan weakened. The yen rose as a result.
Traders were on edge, with Asian markets edging as they awaited U.S. jobs data later in the day that could confirm or disrupt market expectations for a U.S. interest rate cut by June.
Powell said the Fed is “not that far off” from the confidence it needs to cut rates.
The European Central Bank kept interest rates unchanged at 4% on Thursday, setting the stage for a rate cut in June. But with the federal funds rate at 5.25% to 5.5%, the euro rose as investors believed the U.S. had more room to cut interest rates.
The currency hit a nearly two-month high of $1.0956 during Asian trading, returning to the middle of the range it has held for a year. It rose nearly 1% against the dollar for the week.
The yen rose 1.5% in the week, its strongest since December, as policymakers pointed to signs that a virtuous cycle of wages and prices would sustain inflation and prepared for Japan’s first interest rate hike in 17 years. The rate of increase was.
In early Asian trading on Friday, the yen rose above its 50-day moving average to hit a one-month high of 147.54 yen.
“Expectations for a rate hike in Japan are receding,” HSBC analysts said in a note to clients. “Given the current extreme levels of speculative yen short positions, even if the Bank of Japan raises interest rates, the yen will likely avoid a ‘buy on rumors, sell on facts’ situation, and USD/JPY will fall further.” there’s a possibility that.”
The Australian dollar and New Zealand dollar rose by 1.5% and 1.1%, respectively, on the week’s weaker dollar. Sterling rose 1.2% this week to hit a 2024 high of $1.2820.
The Australian dollar is at $0.6631, its highest since mid-January, and the kiwi is at $0.6183, its highest in a week.
Cleveland Fed President Loretta Mester said on CNBC that a few more inflation reports could give her confidence in inflation, adding that she had lowered expectations. Two are planned for May and three before the June Fed meeting.
“The dollar is likely to be more vulnerable to Friday’s (non-farm payrolls) data,” said Imre Speiser, a strategist at Westpac. “Unless the U.S. employment report removes significant support for the dollar, the dollar may continue to weaken next week.”
Economists expect the U.S. to add a robust 200,000 jobs after losing a sharp 353,000 jobs in January.
(Reporting by Tom Westbrook; Editing by Jerry Doyle)
