By Jiaxing Li
HONG KONG, July 3 (Reuters) – The U.S. dollar slid toward its biggest weekly loss since April on Friday after a tepid jobs report cooled market expectations for a near-term Federal Reserve rate hike, providing some relief for the embattled Japanese yen.
Broad dollar weakness lifted the euro to hover near a two-week high at $1.1454, up 0.6% on the week, while sterling firmed to $1.3371 for a 1.2% weekly gain, its best in nearly three months.
That also offered some respite for the struggling Japanese yen, leaving it largely steady at 161.03 per dollar. But markets remained nervous about intervention risks after a sudden jump on Thursday lifted the currency off a 40-year low.
The dollar took a hit after U.S. job growth slowed sharply in June and payroll gains for the prior two months were revised lower, prompting traders to pare bets on a near-term Fed rate hike.
Markets are now pricing in a 52% chance for a hike at the September meeting, according to CME FedWatch, down from 64% in the prior session. U.S. Treasury yields also pulled back from earlier highs, with those on interest rate-sensitive 2-year notes snapping a three-day streak of gains with a 4 basis-point drop.
“At the margin, it is dovish, helping to ease concerns about labour market overheating and the need for more aggressive policy tightening,” Sim Moh Siong, FX strategist at OCBC, said of the U.S. labour data.
But the broader outlook remains constructive for the dollar, particularly against low-yielding currencies, as long as Fed tightening expectations stay intact, he added.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was roughly 0.2% lower at 100.70 after a 0.5% dip on Thursday. It is now down 0.6% for the week, the biggest weekly drop since early April.
The risk-sensitive Australian dollar strengthened 0.3% to $0.6941 and was set to snap a four-week losing streak. New Zealand’s kiwi traded at $0.5717, up 1.4% for the week.
YEN INTERVENTION FEARS LINGER DESPITE REBOUND
Although the yen has clawed back from 40-year lows, investors remained on high alert for possible intervention during a holiday-thinned session with U.S. markets closed for Independence Day.
Japan issued a fresh warning to currency markets on Friday as Finance Minister Satsuki Katayama said Tokyo was in regular contact with Washington on foreign exchange issues and remained ready to support the yen.
Markets are concerned about Japanese officials abandoning their habit of telegraphing risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the battered yen.
“The bigger question is what comes next,” said Tony Sycamore, an analyst at IG, pointing to the 162.83 level as a short-term top for dollar-yen.
“Whether it becomes a more meaningful medium-term high will ultimately depend on incoming U.S. data and, to some degree, developments in the Japanese government bond market.”
(Reporting by Jiaxing Li in Hong Kong; Editing by Kevin Buckland and Jamie Freed)
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