The US dollar is heading for its sharpest weekly decline in nearly three months as weaker-than-expected US jobs data prompted traders to scale back expectations for further Federal Reserve interest rate hikes.
In early Asian trade on Friday, the greenback remained under pressure, extending losses from the previous session and keeping major currencies near recent highs.
The euro hovered close to a two-week peak at US$1.1442, while sterling held firm at US$1.1442, while sterling held firm at US$1.3361 and was on track for a 1.2% weekly gain, its strongest performance in almost three months. The Australian dollar rose to US$0.6935, positioned to snap a four-week losing streak, while the New Zealand dollar traded at US$0.5702, also up 1.2% for the week.
The dollar index, which tracks the greenback against a basket of major peers including the yen and euro, slipped 0.2% to 100.77 after a 0.5% decline in the previous session. It is now down 0.58% for the week, marking its largest weekly fall since early April.
The moves followed a weak US labour market report showing nonfarm payrolls increased by just 57,000 in June, far below forecasts for a 110,000 gain. The labour force participation rate also fell to 61.5%, a more than five-year low.
Markets have since pared back expectations of further tightening from the Fed. According to CME FedWatch data, traders are now pricing in a 52% chance of a rate hike at the September meeting, down from 64% previously.
US Treasury yields also retreated, with two-year notes, which are highly sensitive to interest rate expectations, falling four basis points after a three-day advance.
“At the margin, it is dovish, helping to ease concerns about labour market overheating and the need for more aggressive policy tightening,” said Sim Moh Siong, FX strategist at OCBC.
However, sentiment toward the dollar remains broadly supported in the medium term. Analysts note that as long as expectations for Fed tightening remain intact, the currency could still find support against lower-yielding peers.
The Japanese yen, meanwhile, steadied after a recent rebound, last trading at 161.01 per dollar following a near 1% gain in the prior session. The move offered some relief after the currency had fallen to multi-decade lows.
Market attention remains on potential intervention risk as Japanese officials signal a more targeted stance against speculative yen weakness, shifting away from earlier verbal warnings.
Policy commentary also added to the backdrop, with Toshihiro Nagahama, a government panel member and economic adviser to Japanese Prime Minister Sanae Takaichi, stating that the Bank of Japan should continue gradual rate increases to address excessive yen declines.
“The bigger question is what comes next,” said Tony Sycamore, analyst at IG, who pointed to 162.83 as a short-term ceiling for dollar-yen.
“Whether it becomes a more meaningful medium-term high will ultimately depend on incoming US data and, to some degree, developments in the Japanese government bond market.”
