Dollar Slips to Three-Week Low

5 Jul 2024 , 09:55 AM

The US dollar was at three-week lows on Friday ahead of payrolls data, which would likely impact interest rate expectations, while the pound was firm after the Labour party appeared to gain a big majority in the UK general election.

Sterling was last seen at $1.27575, little changed in early trading and not far off its three-week high of $1.27765 set on Wednesday.

It is up 0.9% for the week, its best weekly performance since mid-May, and is the strongest major currency against the dollar this year, up 1.2%.

Centre-left Labour was on track to win 410 of the 650 seats in parliament, a 170-seat majority that would provide investors with much-needed confidence after years of market turmoil under the Conservatives.

The euro was barely changed at $1.0816 as traders avoided placing big wagers as France prepares for the runoff election on Sunday. Polls indicate that the far-right National Rally (RN) is unlikely to win a majority.

The single currency, which has been under pressure since French elections were called in June, is up about 1% this week and on track for its best weekly performance of the year.

US traders return from their July 4th holiday, and the focus will be fully on non-farm payrolls, which are due later on Friday. According to a Reuters poll of economists, the data is projected to reveal a 190,000 employment increase in June, up from 272,000 in May.

A flood of economic data indicating a weakening U.S. economy has raised anticipation that the data-sensitive Federal Reserve may lower interest rates shortly. According to the CME FedWatch tool, traders expect a 73% chance of a rate cut in September.

Markets are also pricing in two rate cuts this year, despite the Fed’s projection last month of only one rate drop in 2024. Much will rely on the next statistics.

The dollar index, which compares the US currency to six rivals, fell 0.1% to 105.05, near its lowest level since mid-June.

The yen rose 0.16% for the second day in a row, something not seen since the beginning of June. It last traded at $161.095 per dollar, slowly recovering from a 38-year low of 161.96 set on Wednesday.

Traders have been suspicious of Japanese officials meddling in the market to support the currency, which has fallen more than 12% versus the dollar this year due to the vast interest rate differential between Japan and the United States.

Tokyo spent 9.8 trillion yen in late April and early May to interfere in the currency market after the yen fell to a 34-year low of 160.245 per dollar. Analysts believe that the authorities will pay attention to the rate of yen weakness rather than the magnitude.

In other currencies, the Australian dollar advanced 0.16% to $0.6736, hovering near six-month highs, while the New Zealand dollar held at $0.6121.

Bitcoin slid 2% to $57,088, barely shy of its two-month low set on Thursday.

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