Dollar ends week under pressure as data keeps rate cut hopes alive

THE dollar traded modestly weaker against most major peers on Friday (Mar 8), and was on pace for its worst weekly showing against the euro this year after mixed data kept an anticipated June interest rate cut from the Federal Reserve on the table.

Nonfarm payrolls increased by 275,000 jobs last month, the labour department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Data for January was revised down to show 229,000 jobs created instead of 353,000 as previously reported.

The unemployment rate rose to 3.9 per cent in February after holding at 3.7 per cent for three straight months, the data showed.

“The market had been getting a little worried, I think, that the Fed was stepping back from being in a position to cut rates soon, particularly given the recent inflation reports,” said Stuart Cole, chief economist at Equiti Capital.

“Today’s report should provide some optimism that, even if the scale of loosening will not be as strong as considered at the turn of the year, things are still moving in the right direction to allow the Fed to cut this year,” he said.

“In the short term at least, I think the dollar will be trading on a softer footing,” Cole added.

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The euro was 0.1 per cent lower against the dollar at US$1.09425. The common currency hit an eight-week high earlier in the session and was up nearly 1 per cent for the week, its best weekly performance against the buck since the week ended Dec 22.

The European Central Bank (ECB) kept rates at record highs of 4 per cent on Thursday while cautiously laying the ground to lower them later this year, saying it had made good progress in bringing down inflation.

The euro got a lift this week as the dollar came under pressure after Federal Reserve chair Jerome Powell sounded more confident about cutting interest rates in coming months.

Speaking on Thursday, Powell said the Fed was “not far” from having the confidence it needed to cut rates. Currencies typically weaken if central banks lower interest rates.

“(Friday’s data) really kind of solidifies what Powell was saying this week, about the confidence he had in the potential to begin the rate cutting cycle this year,” said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

Meanwhile, the yen rose to a five-week high against the dollar, aided by reports the Bank of Japan (BOJ) is warming to the idea of raising interest rates and considering a new quantitative monetary policy framework.

Jiji news agency reported the BOJ is considering a framework that will show the outlook for upcoming government bond buying amounts.

Separately, Reuters reported a growing number of BOJ policymakers could support ending negative interest rates this month on expectations that this year’s annual wage negotiations will yield strong results, four sources familiar with its thinking said.

Against the yen, the dollar was 0.7 per cent lower at 147.05 yen, its weakest since Feb 2.

“The yen is rising as speculation mounts that the BOJ will buck the global central bank trend and hike interest rates later this month,” said Kathleen Brooks, research director at XTB.

“In the short term, a powerful downtrend seems to be building for USD/JPY, and we believe that this pair could test 145.00,” she added.

Sterling rose on Friday against a weakening euro and dollar after signs that the ECB and the Fed might be closer to cutting rates than the Bank of England. The pound rose 0.3 per cent to US$1.2854 after hitting its highest since late July.

Firming hopes that interest rates in the US and Europe will start to fall in June also helped prop up the risk-sensitive Australian and New Zealand dollars. The Aussie and kiwi were up 0.05 per cent higher.

In cryptocurrencies, bitcoin was up 2.8 per cent at US$69,207, after hitting a record high of US$70,175. REUTERS