Dollar Nears One-Week High as U.S. Jobless Claims Drop

The dollar approached a one-week high against major currencies after a significant drop in U.S. jobless claims reduced fears of an economic downturn. Firmer employment data spurred markets and led to a decreased likelihood of Federal Reserve interest rate cuts this year. Meanwhile, the yen and Swiss franc hovered near one-week lows.

The dollar approached a one-week high against major currencies on Friday following the biggest drop in U.S. jobless claims in nearly a year, alleviating fears of an impending economic downturn. The U.S. currency remained steady against the Japanese yen after a three-day rebound, as stronger-than-expected employment data prompted a re-evaluation of Federal Reserve interest rate cut bets for later this year.

The yen and Swiss franc—another safe-haven currency—hovered near one-week lows as major stock markets rose and Treasury yields dipped. The week has been turbulent for the markets, triggered by unexpectedly weak U.S. payroll figures that caused global stocks to tumble and drove demand for safer assets like the yen and the franc to their highest levels since the start of the year.

“The prospect of a purely risk-on environment, pro carry for FX, for the second half of this year, is less appealing given our more conservative forecasts on the dollar/yen and the euro/Swiss franc,” said UBS FX strategist Yvan Berthoux. “We don’t anticipate a significant unwind to come. The washout has been quite evident in this environment.”

The dollar remained at 146.96 yen at 1133 GMT, on track for a 0.3% weekly rise, its first in six weeks. It eased 0.3% to 0.8644 Swiss franc but was still heading for a 0.8% weekly advance.

Thursday’s data showed that new applications for emergency unemployment benefits in the U.S. fell more than expected last week, calming fears of a weakening labor market. The odds of the Federal Reserve cutting interest rates by 50 basis points at its next policy meeting dropped to 55% from 69% a day earlier, with a 25 basis point cut now seen as having a 46% probability, according to the CME Group’s FedWatch Tool.

The yen reached its strongest level since Jan. 2 earlier in the month, driven by an unwinding of short positions after a surprise rate hike from the Bank of Japan amidst weak U.S. economic indicators. Commodity Futures Trading Commission figures later on Friday will provide a clearer measure of the extent of yen buying.

The dollar index, which measures the currency against six others, was nearly flat at 103.20 after three days of gains. The euro was slightly lower at $1.09175 but largely unchanged from a week ago, having hit $1.1009 for the first time since Jan. 2 on Monday. Sterling slipped to $1.2743 after a 0.5% rally overnight pulled it from a more than one-month low, remaining on track for a fourth straight week of decline.

The Australian dollar slipped 0.3% to $0.6572 before reaching its highest point since July 24 earlier in the session. The New Zealand dollar achieved a three-week high of $0.6035 before settling flat on the day at $0.6013.