By Alden Bentley, Alun John and Rae Wee
NEW YORK/LONDON/SINGAPORE (Reuters) -The dollar traded sideways on Thursday ahead of Friday’s U.S. employment data that could help the Federal Reserve set a timetable for easing, while the euro held steady after a widely expected rate cut from the European Central Bank.
The euro rose 0.17% to $1.0887, nearing the two-and-a-half-month peak of $1.0916 earlier this week. Against the Japanese currency, the rate fell 0.09% to 169.57 yen.
The , which measures the dollar against a basket of currencies including the yen and euro, was 0.09% lower at 104.16, barely reacting to news that jobless benefit claims rose more than expected last week to 229,000.
Weekly unemployment claims were also slightly above last week’s upwardly revised 221,000. The data supported this week’s market narrative that labor tightness is easing, which would be good for inflation and help push U.S. Treasury yields lower.
Inflation in the 20 countries that share the euro has fallen from more than 10% at the end of 2022 to just above the European Central Bank’s 2% target in recent months, largely thanks to lower fuel costs and a normalization of supply following the problems following the pandemic.
That progress has stalled recently and what a few weeks ago looked like the start of a major ECB easing cycle now looks more uncertain amid signs that eurozone inflation may remain stubborn, as has been the case in the United States .
“It was as much as expected, what the ECB has said and done, that if you make the adjustments for the 25 basis point cuts at this point, the swap market hasn’t changed that much,” said Marc Chandler, chief market strategist at Bannockburn. Global Forex in New York.
Chandler was referring to the interest rate differentials between the eurozone and the US that determine forward prices for currency pairs and influence the spot rate. He said it is not unusual for the dollar to weaken ahead of the monthly employment release, only to rebound.
The Canadian dollar rose 0.11% to C$1.37 per US dollar per day after the Bank of Canada’s expected rate cut.
Ahead of Friday’s US jobs report, investors are grappling with the implications for the Fed of several other US data this week, which show employment growth moderating, albeit along with a rebound in services sector activity.
The Federal Open Market Committee meets next week but is not expected to cut rates yet. Markets are pricing in two 25 basis point Fed cuts this year, the first likely in September.
The euro was also steady against the pound at 85.14 pence, although at the bottom of its recent range.
Against the dollar, the pound was virtually stable at $1.2790.
THE YEN IS RISING
The yen was firm at 155.65 per dollar as investors digested comments Thursday from Bank of Japan Governor Kazuo Ueda that it would be appropriate to reduce bond purchases by the central bank as it moves toward a exit from the massive monetary stimulus measures.
The BOJ will hold its two-day monetary policy meeting next week.
“This was almost a momentum play by the Bank of Japan – i.e. add a positive news flow to the JPY when the funding currencies – JPY and CHF – were already covered and bought back, and the result was that the JPY rally gained additional support ,” said Chris Weston, head of research at Pepperstone.
Japan’s currency briefly rallied earlier this week as investors unwound positions in yen-funded carry trades following a strong election victory for Mexico’s ruling party that raised concerns over disputed constitutional reforms.
That resulted in pressure on long peso/short yen positions, a favorite among carry trades.
In a carry trade, an investor borrows in a country’s currency with a low interest rate and invests the proceeds in a currency with a higher interest rate.
The peso fell fractionally against the yen () at 8.8703 yen, a day after rising 2.6%. The rate had fallen about 6% against the Japanese currency early this week in the wake of the election results in Mexico.
In cryptocurrencies, bitcoin fell 0.43% to $70,887.00. fell 0.88% to $3829.9.
