TOKYO, Sept 1 (Reuters) – The dollar was on course to snap a six-week winning streak against major peers on Friday, as it headed into a pivotal monthly U.S. jobs report that is likely to inform the path for Federal Reserve policy over the near term.
The U.S. currency dipped to a one-week low against the yen, weighed down by slumping Treasury yields, after a volatile week when overall soft economic data tempered the outlook for further Fed rate hikes.
However, the greenback held on to gains made against the euro and sterling overnight after officials at the respective central banks struck more dovish postures ahead of policy meetings this month.
Elsewhere, the yuan strengthened after the People’s Bank of China cut forex reserve requirements for the first time in a year.
The U.S. dollar index – which measures the currency against a basket of six developed-market peers, including the euro, sterling and yen – edged 0.02% lower to 103.61 on Friday, bringing declines this week to 0.53%.
A parade of employment and inflation data has paved the way to the nonfarm payrolls report later in the global day, and much of it has been on the weaker side, leading traders to pare bets for a rate hike on Sept. 20 to 12% from 18% a week ago, according to the CME Group’s FedWatch tool.
“The dollar rally is looking quite tired, with outsized falls in response to what are normally second-tier data releases, raising the danger of a dramatic fall if the first-tier payrolls number is soft,” said Sean Callow, a senior currency strategist at Westpac.
For the dollar index, “a weekly close below 103.00 seems assured in that case,” he said.
Two-year Treasury yields , which are particularly sensitive to rate expectations, have declined about 20 basis points this week to 4.86%, the biggest slide since mid-March.
That has helped push the dollar down against the yen . It slipped 0.03% to 145.485 yen on Friday, putting its loss for the week at 0.65%.
The dollar made up some ground on the euro overnight though. The single currency was little changed at $1.0846 following a 0.74% tumble on Thursday that pared its weekly advance to 0.49%.
European Central Bank board member Isabel Schnabel, a noted policy hawk, said that euro-region growth is weaker than predicted just a few months ago, although she added that rates could still rise further.
ECB Vice-President Luis de Guindos said separately that the central bank is nearing the end of its hiking cycle.
Euro-area data on Thursday showed core inflation fell in August. Expectations for an “upside surprise” had been building after German inflation outpaced forecasts in a reading on Wednesday, said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.
“There’s a little bit of relief there, (which) had an impact in just dampening expectations for a September ECB hike,” he said. “That’s basically what took the bite out of the euro.”
Also on Thursday, Bank of England chief economist Huw Pill highlighted the risk that policy tightening will hurt Britain’s economy, even as he said the central bank will “see the job through” on bringing inflation back to target. read more
“Pill’s comments appear consistent with another quarter-point turn of the screw on 21 September, but not necessarily thereafter,” Attrill said.
In Asia, the early focus turned to the yuan, which jumped to the highest since Aug. 11 at 7.2392 per dollar in offshore trading , before paring most of those gains. The dollar was last 0.12% weaker at 7.2670 yuan.
The People’s Bank of China said it would cut the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% beginning Sept. 15, according to an online statement, as it expanded efforts to shore up its embattled currency, which sank to an 11-month trough at 7.3426 in mid-August.
In cryptocurrencies, bitcoin unwound all of its gains for the week, last trading at $26,033 after dropping 5% overnight as the Securities and Exchange Commission (SEC) delayed a decision on whether to approve several applications for spot bitcoin ETFs.
Bitcoin had jumped as high as $28,142 on Tuesday after a U.S. court ruled that the SEC was wrong to reject an application from Grayscale Investments to create such an ETF, which would be the first of its kind. read more
Reporting by Kevin Buckland
Editing by Shri Navaratnam
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