By Hannah Lang
NEW YORK (Reuters) – The dollar rose on Thursday after new U.S. labor market data showed unemployment benefits fell more than expected last week, easing fears of an impending recession.
The dollar’s rise was most notable against the yen, following a sharp decline the day before in a volatile week as investors digested the unwinding of popular carry trades and the possible evolution of Japanese monetary policy.
Initial unemployment claims fell to a seasonally adjusted 233,000 for the week ending Aug. 3, the Labor Department said Thursday, suggesting fears that the labor market is unraveling were overblown.
The yen was last down 0.37% at 147.205, after falling 1.6% on Wednesday after Bank of Japan Deputy Governor Shinichi Uchida played down the chance of a near-term rate hike, which would typically boost the currency.
The yen’s sharp moves pushed the , which measures the U.S. currency against six others including the yen, to a weekly high before retreating. The reading was last at 103.21, above Monday’s seven-month low of 102.15.
Still, market participants braced for more volatility.
“Regardless of the fact that the risk is a bit higher these days, I don’t think the degree of these fluctuations that we have seemingly on a daily basis, or at least every other day, is a healthy sign,” Eugene Epstein said. , head of structured products, North America, at Moneycorp.
The yen started the week rising to a seven-month high of 141.675 per dollar, far from the 38-year low it was trading at in early July, after soft US jobs data last week fueled recession worries and sent investors into turmoil brought.
A surprise rate hike from the BOJ last week also forced investors to retreat from carry trades, where they borrow the yen at low rates to invest in dollar-priced assets for higher returns. This settlement boosted the yen.
A summary of views expressed at the BOJ’s July policy meeting showed on Thursday that some board members cited the need to keep raising rates, with one saying they should eventually be raised to at least around 1%.
The contrasting views from the summary and Uchida on whether the BOJ will continue to raise rates or pause as a result of market volatility underlines the delicate task facing the central bank and is likely to keep investors skittish.
“As the market pulls back from the brink… US interest rates have risen, and I think this will give the dollar/yen a little bit more support,” said Marc Chandler, chief market strategist. at Bannockburn Global Forex.
Some analysts believe that this unwinding in the carry trade will take even longer, and may only be halfway through, which could increase volatility.
Even if the US Federal Reserve makes a sharp rate cut, as most traders expect in September, and the BOJ hikes again, there would still be an incentive to use the yen to finance other transactions.
The Swiss franc, another currency used to finance carry trades that benefited from waning momentum earlier this week, fell 0.47% to 0.866 per dollar, after falling more than 1% on Wednesday.
The euro fell 0.05% to $1.0917, while sterling rose 0.48% to $1.275.
Investors’ attention will now turn to the US consumer price inflation report for July due next week, as well as comments from Fed Chairman Jerome Powell at the August 22-24 Jackson Hole Economic Policy Symposium.
“Investors should brace for a bumpy ride,” said Vasu Menon, director of investment strategy at OCBC.
The Australian dollar rose 1.12% to $0.659, while the New Zealand dollar rose 0.25% to $0.601. [AUD/]
In cryptocurrencies, bitcoin rose 7.6% to $59,334.95, recovering after falling below $50,000 on Monday. Ether last rose 9.72% to $2,577.70.
