Story
US Dollar Retreats From 13-Month High on Softer Payrolls Data
Summary
The U.S. dollar has fallen from a recent 13-month peak following a softer-than-expected employment report, which has tempered expectations for further Federal Reserve interest rate hikes. The euro is poised for weekly gains as a result of the dollar's retreat.
The U.S. dollar pulled back from a near 13-month high on Friday, set for a weekly loss after employment data came in softer than anticipated. The dollar index, which measures the currency against a basket of six rivals, was on track to snap a two-week winning streak with a decline of approximately 0.8% for the week. Trading volumes were reportedly thin due to a U.S. market holiday.
The cooling payrolls report has led traders to scale back expectations for further interest rate hikes by the Federal Reserve. Prior to the data, market tools had indicated a significant probability of a rate increase in September, but those bets have now been largely reduced. However, recent comments from Fed Chair Kevin Warsh reaffirming the central bank's commitment to its 2% inflation target are seen as providing a potential floor for the dollar.
The dollar's weakness provided a lift to other major currencies. The euro rose and was positioned to end the week with gains of around 0.5%. The British pound also saw a modest increase. In Asia, the Australian dollar, often viewed as a proxy for regional risk appetite, also strengthened against the U.S. currency.
AdMeanwhile, the Japanese yen steadied after recovering from 40-year lows earlier in the week. The currency has been under close watch as Japanese authorities have repeatedly warned they are prepared to intervene in foreign exchange markets to counter excessive speculation. The potential for intervention was heightened by the U.S. holiday, as officials have acted during such periods in the past. Analysts note, however, that a sustained reversal for the yen would likely require a shift in underlying economic fundamentals, not just intervention.