By Hannah Lang
NEW YORK (Reuters) – The dollar retreated from a one-week high against major currencies on Friday, capping several turbulent days as traders digested falling U.S. jobless claims and the prospect of a looming economic recession.
The US dollar fell against the Japanese yen after three days of rebounding after Thursday’s better-than-expected jobs report dented expectations that the Federal Reserve would cut interest rates this year.
The yen and another safe-haven currency, the Swiss franc, hovered near one-week lows as major stock prices rose and government bond yields fell.
Markets have endured a turbulent week, mainly due to a surprisingly weak U.S. jobs report a week ago that sent global stocks tumbling, but demand for safe-haven assets such as the yen and franc sent those currencies soaring to their highest levels since the start of the year on Monday.
The dollar was down 0.39% on the previous day at 146.675 yen but is still on track for its first weekly gain in six weeks.
“There was a strong desire in the market to finally use the yen as a perfect haven from the turmoil and conflict that’s going on around the world,” said Juan Perez, director of trading at Monex USA in Washington.
The benchmark against six other currencies fell 0.136% to 103.14 after three days of gains.
Against the Swiss franc, it fell 0.18% to 0.865 francs, but is still trending higher on a weekly basis.
“Given our more conservative forecasts for dollar/yen and euro/CHF, the prospect of a completely risk-on environment – favouring FX carry – later this year doesn’t look all that exciting,” said Yvan Berthoud, currency strategist at UBS.
“We don’t foresee any significant further easing. In this environment, a collapse is obvious.”
Data on Thursday showed a larger-than-expected fall in the number of Americans filing new claims for unemployment benefits last week, easing concerns that the labor market is collapsing and confirming that a gradual economic softening continues.
According to CME Group’s (NASDAQ:) FedWatch tool, the probability that the Fed will cut rates by 50 basis points at its next policy meeting on Sept. 17-18 has fallen to 52% from 69% the previous day, while the likelihood of a 25 basis point cut is seen as 49%.
Is the yen short clearing complete?
The yen has surged this month, hitting 141.675 to the dollar on Monday, its highest since Jan. 2, as short sellers’ unwinding snowballed after the Bank of Japan unexpectedly raised interest rates amid weak U.S. economic data.
Data from the Commodity Futures Trading Commission is expected to give a clearer picture of the extent of yen buying later on Friday.
The euro was flat at $1.0919, little changed from a week ago, after rising to $1.1009 on Monday for the first time since Jan. 2.
Sterling rose 0.5% overnight, recovering from its lowest level in more than a month to hit $1.2756.
The New Zealand dollar was down 0.29% to $0.657, after the New Zealand dollar hit a three-week high of $0.6035 before slipping back down to its most recent price of $0.5998.
