By Brigid Riley and Alun John
TOKYO/LONDON, Aug 4 (Reuters) – The dollar climbed a bit against the yen on Friday, but largely stayed below recent highs against its major peers as investors looked ahead to a U.S. jobs report later in the day that could influence the path for interest rates.
The greenback climbed 0.20% against the yen to 142.8, while the euro was steady at $1.09455, just above the previous day’s four-week low.
The pound was flat at $1.2710, just over Thursday’s near five-week low touched briefly after the Bank of England slowed the pace of interest rates hikes to 25 basis points.
This left the dollar index at 102.56.
On Thursday, the index pushed to 102.84, the highest since July 7 , but lost steam later in the day with the monthly nonfarm payrolls report looming.
The report is due at 1230 GMT (0830 EST) and is expected to show U.S. job growth slowed further in July but still had enough momentum to shield the economy from a recession. A Reuters survey of economists predicts nonfarm payrolls (NFP) increased by 200,000 jobs last month.
Current market pricing reflects expectations that the U.S. Federal Reserve will hold interest rates at their current level through to early next year. This means, said Francesco Pesole, FX strategist at ING, that here is room for markets to shift either to price in a further hike before year end, or bring forward the first rate cut.
As a result, “an out-of-consensus NFP print should trigger sizeable directional moves” in the dollar against other currencies he said.
He added, “elevated volatility in longer-dated yields should see that part of the curve move quite sharply after the release, and continue to be a factor for FX today.”
U.S. long-term Treasury yields hit nine-month highs on Thursday, on the back of a deluge of supply as well as data pointing to further resilience in the U.S. labour market.
“The FX market is not particularly interested in extending positions, particularly in front of the payrolls report,” said Ray Attrill, head of FX strategy at National Australia Bank, noting that the dollar has not extended gains to the degree that might be expected based on the rise in Treasury yields.
“Unless or until what’s been happening with Treasury yields reverses, there’s no meaningful prospect of dollar-yen coming down here, unless we see a very dramatic deterioration in risk sentiment,” he added.
The yen has been sensitive to higher U.S. yields as the Bank of Japan keeps local rates pinned down. Now, after the BOJ’s surprise tweak last week, traders are trying to gauge how fast and how high it will let yields rise.
The Australian dollar climbed as much as 0.59% buoyed by the end of Chinese anti-dumping and anti-subsidy tariffs on Australian barley imports as the trade partners repair strained ties.
It gave back those gains later in the day, and was last flat at $0.6547.
The Swiss franc, the G10 currency that has gained the most against the dollar this year, slipped.
The dollar was last up 0.4% at 0.8776 francs, moving further away from an eight-and-a-half year low of 0.8554 touched in late July.
China’s yuan pared early gains against the dollar, and looked set to post a fall for the week, as hopes ebbed for imminent policy stimulus to help the faltering economy.
(Reporting by Kevin Buckland and Brigid Riley in Tokyo and Alun John in London ; Editing by Jacqueline Wong, Sharon Singleton and Kim Coghill)
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