Anika Begay
By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The dollar edged to a weekly high against other major currencies on Friday as the biggest drop in U.S. jobless claims in nearly a year allayed fears of an impending economic recession.
The U.S. currency held steady against the Japanese yen after a three-day rebound, as stronger-than-expected jobs data on Thursday prompted a reduction in bets on Federal Reserve interest rate cuts later this year.
The yen and the Swiss franc, another safe-haven currency, hovered near one-week lows, while major stock markets rose and Treasury yields fell.
Markets have had a turbulent week, largely triggered by surprisingly weak US payrolls data a week ago, which sent global stocks tumbling, while demand for the safety of assets such as the yen and the franc sent those currencies soaring to their highest levels since the start of the year on Monday.
“The prospect of a purely risk-on, pro-carry environment for the FX market in the second half of this year is much less attractive given that we are more conservative on the dollar/yen and euro/Swiss franc,” said Yvan Berthoux, FX strategist at UBS.
“We do not expect a further significant reduction. The collapse was quite clear in this context.”
At 1133 GMT, the dollar was down 0.2% at 146.96 yen, on track for a gain of about 0.3% this week, which would be its first weekly gain in six weeks.
Against the Swiss franc, the single currency lost 0.3% to settle at 0.8644 francs, but is still on track for a weekly gain of 0.8%.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits fell more than expected last week, allaying fears about a tightening labor market and reinforcing the idea that a gradual easing is still underway.
According to the CME Group’s (NASDAQ) FedWatch Tool: the odds that the Fed will cut interest rates by 50 basis points at its next policy meeting on September 17-18 have fallen to 55% from 69% the day before, while a 25 basis point cut is now considered likely at 46%.
SHORT YEN DISSOLUTION COMPLETED?
The yen has soared this month, hitting its highest since Jan. 2 at 141.675 per dollar on Monday, as short-position unwinding intensified following an unexpected rate hike by the Bank of Japan amid weak U.S. economic indicators.
Later on Friday, data from the Commodity Futures Trading Commission will provide a clearer indication of the extent of the yen buying that has taken place.
The index, which measures the currency against six others, was virtually unchanged at 103.20 after three days of gains.
The euro was down slightly at $1.09175, but little changed from last week. On Monday, it rose to $1.1009 for the first time since January 2.
Sterling slipped to $1.2743, after a 0.5% overnight rally that pulled it back from a more than one-month low. However, it remained on course for a fourth straight week of decline.
It fell 0.3% to $0.6572, before rising to its highest level since July 24 earlier in the session, while the New Zealand dollar hit a three-week high of $0.6035 before settling at $0.6013.
