Written by Chuck Mikolajczak
NEW YORK (Reuters) – The dollar fell against most currencies on Monday as economic data showed signs of softening in the U.S. labor market, while the Bank of England opened the door to interest rate cuts. This caused the pound to rebound from its previous lows.
The number of new applications for state unemployment benefits for the week rose by a seasonally adjusted 22,000 to 231,000, the highest level since late August last year and higher than the 215,000 expected by economists polled by Reuters.
The data comes after last week’s weaker-than-expected U.S. jobs report and other data showing job openings fell to a three-year low in March.
Market participants are hopeful that the softening labor market is a sign that consumers will start to rein in spending, which in turn could help curb inflation. Next week’s statistics will include consumer prices (CPI), producer prices (PPI) and retail sales.
“There was a natural reaction to yields and a weaker dollar this morning after higher-than-expected jobless claims,” said Karl Sciamotta, chief market strategist at Kopay in Toronto.
Sciamotta said there was a seasonal distortion in insurance claims reports that may have led to the higher numbers, but recent economic data showed that “the slowdown in the world’s largest economy “This seems to suggest that even if the economy slows down, it will continue to grow.” “Successive declines in the U.S. Consumer and Producer Price Index and retail sales next week could sting the U.S. trade exceptionalism that has long dominated the market.”
The dollar index, which measures the US dollar against a basket of currencies, fell 0.21% to 105.29, while the euro rose 0.27% to $1.0774.
The pound rose 0.1% to $1.2509 after the US data. Sterling fell to $1.2446, its lowest since April 24, after the Bank of England (BoE) paved the way for interest rate cuts.
The BoE’s Monetary Policy Committee voted 7 to 2 to keep the central bank’s key interest rate unchanged at 5.25%, the highest level in 16 years, with Deputy Governor Dave Ramsden joining Swati Dhingra in agreeing to lower it to 5%. Voted yes. BoE Governor Andrew Bailey said the central bank may have to cut interest rates more than investors expected.
The dollar weakened 0.02% against the Japanese yen to 155.45 yen, but hawkish views from Bank of Japan members helped slow the yen’s decline. The dollar has gradually recovered against the Japanese currency after falling 3.4% last week, marking the largest weekly decline since early December 2022.
The yen weakened further after the Bank of Japan’s opinion summary indicated that many board members pointed to the need for steady interest rate hikes and were overwhelmingly hawkish at the April policy meeting. It had previously risen to 155.15 yen to the dollar.
Bank of Japan Governor Kazuo Ueda said the Bank of Japan would examine the recent depreciation of the yen in guiding monetary policy.
Market participants suspect the Japanese government has spent about $60 billion to stem the yen’s decline, which hit a 34-year low against the dollar last week at around 160 yen.
“The fundamental backdrop for the Japanese yen will not change unless the Bank of Japan feels an urgency to quickly normalize policy,” George Saravelos, head of foreign exchange research at Deutsche Bank, reiterated in a note Thursday.
(Reporting by Chuck Mikolajczak; Editing by Paul Simao)
