The dollar index was set for its first weekly fall this year, hurt by lower Treasury yields on the back of banking sector jitters, as traders waited for U.S. jobs data later on Friday for clues on when the Federal Reserve could begin easing rates.
The euro was last up 0.1% at $1.0881, building on Thursday’s 0.49% gain, and the pound was up 0.1% at $1.2757, having jumped 0.43% the previous day.
That left the dollar index, which tracks the currency against six other majors, at 102.99, down 0.1% on the day at around a one-week low.
The index is set for a weekly fall of 0.5%, its first week of declines in 2024, and its biggest weekly loss since mid December.
“The U.S. dollar suffered yesterday as U.S. Treasury yields continued to decline with the New York Community Bancorp news from Wednesday continuing to undermine investor confidence as commercial real estate risks get greater attention,” said MUFG analysts in a note.
U.S. regional banks sold off again on Thursday, adding to losses from a day earlier when New York Community Bancorp reported increased stress in its commercial real estate portfolio.
The benchmark 10-year Treasury yield fell a further 10 basis points on Thursday, having shed around 27 bps this week. It steadied on Friday and was last at 3.884%.
The dollar has fallen nearly 1% this week versus the Japanese yen, which is sensitive to moves in U.S. rates, though it was firmer on Friday at 146.59 yen.
A summary of opinions from the Bank of Japan’s (BOJ) January meeting out this week showed policymakers discussed the likelihood of a near-term exit from negative interest rates and possible scenarios for phasing out the bank’s massive stimulus programme.
That highlighted a growing view within the board that conditions were falling in place to soon pull short-term interest rates out of negative territory, which would be Japan’s first interest rate hike since 2007.
Bond yields could receive another jolt later in the day, with the release of the closely-watched U.S. non-farm payrolls report. It comes on the heels of the Fed’s latest policy meeting where rates were held as expected, though Chair Jerome Powell pushed back against market expectations of rate cuts in March.
“If we have a relatively soft payrolls number…then I think you’d probably see the needle move a little bit further back, closer to 50-50” for March rate cut expectations, Ray Attrill, head of FX strategy at National Australia Bank, said.
“I think the dollar will be quite sensitive to that.”
Market pricing now shows a 37.5% chance of a Fed cut in March, compared to an more than 70% chance a month ago, according to the CME FedWatch tool. A cut in May is almost fully priced in.
The Bank of England also held rates on Thursday, helping put a floor under declines in the pound, though its impact on markets ended up being overwhelmed by the news from the United States.
Elsewhere, the Australian dollar was up 0.5% to trade at $0.6606, and the Swiss franc was a touch stronger at 0.8557 per dollar and 0.9313 per euro.
(Reporting by Rae Wee; Editing by Emelia Sithole-Matarise, Kirsten Donovan)
