LONDON/SINGAPORE :The dollar steadied on Friday after losing ground overnight on the back of US data showing further signs of a cooling labor market, while the British pound inch higher after data showed the UK economy beat expectations in the first quarter.
Against the Japanese yen, the dollar was trading at 155.68 yen, up 0.15 per cent but unable to reclaim Thursday’s 155.95 high. The euro stood at $1.0783, almost flat after a 0.3 per cent gain overnight.
The dollar index, which measures the greenback against six peers, was little changed at 105.22 after falling 0.3 per cent on Thursday.
The retreat followed data showing a jump in initial claims for US state unemployment benefits. Coming on top of last week’s weak payrolls report, it further encouraged investors that the Federal Reserve will start lowering interest rates in the autumn and spurred buying of stocks and bonds, pulling down yields.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said the dollar was unlikely to fall too far, however, given that high US interest rates still make US bonds attractive.
“They’re still offering the highest rates in the G10 space. So that, in tandem with low volatility, suggests the US dollar will remain supported,” he said. “It’s setting up to be more range-trading unless we see some kind of a shock.”
Investors nudged sterling higher on Friday after data showed the UK economy grew 0.6 per cent, more than expected, in the first quarter of the year, exiting a mild recession.
The pound was last up 0.1 per cent at $1.2537, having traded at $1.2516 before the figures. It fell to a two-week low on Thursday after the Bank of England held interest rates but paved the way for a cut in the summer.
The yen was on track to lose around 1.7 per cent against the dollar for the week, as traders continued to test the resolve of Japanese authorities to support the currency.
Market players estimate Tokyo spent some $60 billion last week to bring the yen back to its lowest since 1990 at around 160. Japan’s Finance Minister Shunichi Suzuki repeated his line on the government’s intent to intervene if needed, at a regular post-cabinet meeting news conference on Friday.
“If indeed we go back to close to 160 then the risk of intervention does rise,” said RBC’s Tan. “Verbal intervention has been increasing in the last few days for sure.”
Traders will be closely watching the April US producer price index and the consumer price index out next week for signs that inflation has resumed its downward trend towards the Fed’s 2 per cent target rates.
