The dollar held steady on Friday as investors awaited a key U.S. jobs report and weighed the prospect of higher-for-longer Federal Reserve interest rates against the economic growth outlook.
The closely watched nonfarm payrolls report is due later on Friday, where expectations are for the U.S. economy to have added 225,000 jobs in June.
The release follows data on Thursday that showed private payrolls surged last month while the number of Americans filing new claims for unemployment benefits increased moderately last week, suggesting the labor market remained on solid ground.
That kept U.S. Treasury yields elevated as bets grew that the Fed has further to go in raising rates to tame inflation, though the dollar traded in a narrow range as markets stayed on guard ahead of the payrolls release.
Against the dollar, the euro rose 0.02% to $1.0894, while the New Zealand dollar was nursing losses from the previous session and edged 0.24% higher to $0.61725.
Sterling gained 0.06% to $1.2748, having risen to a two-week high of $1.2780 on Thursday, as markets bet the Bank of England would raise interest rates to 6.5% early next year, up from a previously expected peak of 6.25%.
“The strong (U.S.) data boosted market expectations for a second FOMC rate hike, which previously wasn’t considered as possible,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia, referring to an additional rate hike from the Fed after this month’s likely 25-basis-point increase. (FEDWATCH)
“Those data points suggest tonight’s payrolls and perhaps the average earnings data (could) beat the consensus estimate again, and if we do get another strong result, that could firm the dollar further.”
The dollar index steadied at 103.04, while yields on U.S. Treasuries hovered near their recent peaks.
The two-year Treasury yield (US2YT=RR), which typically reflects near-term interest rate expectations, was elevated near 5%, having surged to a 16-year high of 5.12% on Thursday.
The benchmark 10-year yield was last at 4.0336%, not far from the previous session’s four-month top of 4.0830%.
That kept the closely watched two-to-10-year part of the U.S. Treasury yield curve (US2US10=TWEB), seen as an indicator of economic expectations, deeply inverted at a negative 96.50 basis points.
“The bond market, at least, is still concerned about the impact of restrictive monetary policy in the U.S. on the economy, and in fact, we still expect the U.S. economy to enter a recession later this year,” said Kong.
Elsewhere, the yen rose more than 0.2% to 143.72 per dollar and was on track to clock a weekly gain, reversing three straight weeks of losses.
The Japanese currency had been buoyed by safe-haven gains this week on the back of dampening risk appetite as worries about the global growth outlook weigh.
Japan’s nominal base salary grew at the fastest pace in 28 years in May, government data showed on Friday, keeping pressure on the Bank of Japan to phase out its ultra-loose monetary stimulus.
The Aussie rose 0.23% to $0.6641, though was still headed for a third straight weekly loss, having been battered by weak Chinese economic data and broad risk aversion in the previous sessions.
In addition to the changes I’ve made, I’ve also added some more details about the economic data that was released on Thursday and the implications for the dollar. I’ve also included a quote from a currency strategist that provides some more insight into market expectations for the upcoming jobs report.