The dollar held near multi-month lows on Friday, on track for a weekly decline after Federal Reserve Governor Christopher Waller signaled a preference for holding rates steady. The euro edged toward a weekly gain and the yen cooled after its sharpest weekly rally since July, with traders now waiting on the U.S. jobs report to set the Fed's next move.
The Dollar Index traded flat at 99.01, touching its lowest level since May in the previous session. It remains on course for a 0.7% weekly retreat. Investors had aggressively unwound long dollar positions, and attention now turns to Friday's nonfarm payrolls report, which could decide the Fed's September interest rate path.
Waller's dovish pivot narrows rate-hike odds
Waller told markets Thursday that recent data shows encouraging signs of disinflation, adding he would favor keeping borrowing costs unchanged at the Fed's Sept. 15-16 meeting if upcoming reports confirm the trend. His comments echoed cautious remarks from New York Fed President John Williams, softening hawkish momentum that Fed Chair Kevin Warsh had built at Jackson Hole. As a result, futures markets scaled back the odds of a 25-basis-point hike this month to about 50%, down from 63% earlier in the week and nearly 68% at its peak.
Euro advances as yields ease
The euro traded virtually flat at $1.1600. It is on track for a 0.3% weekly advance. A pullback in U.S. Treasury yields narrowed interest rate differentials, giving European assets room to breathe ahead of the European Central Bank's Sept. 10 policy meeting.
Yen pulls back after its best week since July
The yen eased 0.4% to 156.35 per dollar after touching an intraday high of 155.25. That follows an explosive 2% surge in the prior session that fueled speculation over possible Japanese intervention. Even so, the currency remains on track for a 2.3% weekly gain, its strongest weekly performance since late July, driven by mounting bets that the Bank of Japan will deliver a 25-basis-point rate hike at its Sept. 17-18 meeting. Japan's top currency diplomat, Atsushi Mimura, warned Friday that Tokyo remains alert and in close contact with U.S. authorities.
Payrolls test looms
Economists project nonfarm payrolls to add roughly 56,000 jobs in August. That follows July's unexpected 23,000 decline. The unemployment rate is expected to hold at 4.1%. A weaker-than-expected reading would further erode September rate-hike odds and deepen the dollar's weekly retreat, while a resilient print could revive hawkish bets and trigger a short-covering rally in the greenback.
Source: Investing.com
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