FOREX-Dollar range-bound after mixed economic data; yen set for strong weekly finish

The U.S. dollar was mostly flat against peer currencies on Thursday, ‌holding ​steady after mixed signals from the latest release of U.S. economic indicators, while the Japanese yen was headed for one of its strongest weekly finishes in a year.

The U.S. dollar was mostly flat against peer currencies on Thursday, ‌holding ​steady after mixed signals from the latest release of U.S. economic indicators, while the Japanese yen was headed for one of its strongest weekly finishes in a year. U.S. Labor Department data on Thursday showed a less-than-expected decrease in the number of Americans filing new applications for unemployment, consistent with economists' view that the labor ‌market was stabilizing. That data was on top of indicators showing a drop in the U.S. unemployment rate amid strong jobs growth in January and weak retail sales in December. Inflation figures are due on Friday. The euro was flat against the dollar at $1.186975. The dollar was down 0.29% against the Swiss franc at 0.76955 .

"I think we're still looking for guidance on a lot of the bigger questions around the Fed and the state of ‌the U.S. economy, which are tied together," said Marvin Loh, senior global market strategist at State Street in Boston. "Earlier in the week, we got retail sales numbers that made things look pretty bad and then ‌we got payroll numbers, which were pretty much affirming the no-fire, no-hire environment that we have and one where the Fed is going to wait on hold until it gets a better sense on tariffs, inflation, and whether or not the retail sales numbers are actually signaling an impending recession," Loh added.

The market is pricing for a Fed that's going to be on hold until the middle of the year and that is weighing on the dollar, he added. Markets are now pricing in a 92% chance that the ⁠Fed will leave rates ​unchanged at its next meeting, although the probability of ⁠a rate cut at its June meeting is now at nearly 50%, according to the CME's FedWatch tool.

The dollar index was flat at 96.93. Market expectations on near-term Fed rate cuts appeared to be weighing on U.S. assets. Wall Street indexes, including the benchmark S&P ⁠500, were trading lower. U.S. Treasury yields fell, with the yield on benchmark U.S. 10-year notes down 7.7 basis points at 4.106%.

"We continue to expect broad-based weakness in the USD against all of the major developed economy currencies," Scotiabank analysts led ​by Shaun Osborne said in an investor note. "The weak USD forecast extends through 2026 and into the end of our forecast horizon at the end of 2027," he said, contrasting the Fed's policy ⁠outlook, which includes near-term easing, with steady policy settings or longer-term tightening expected at other central banks. YEN POISED FOR BIG WEEKLY GAIN

The Japanese yen was set for a strong weekly finish against the dollar, buoyed by optimism over Sunday's landslide election victory by Prime Minister Sanae ⁠Takaichi's ​Liberal Democratic Party. The emphatic victory has emboldened Takaichi's mandate to boost investment and lower taxes to rev up the economy, all of which could make it more difficult for the Bank of Japan to further raise borrowing costs.

"It's a pretty significant victory and I think it pushes back against how Japan has operated as a country for several decades. So we'll see if they put the fiscal stimulus out there and whether ⁠or not rate cuts, which we think should continue to make their way into the BOJ, materialize," Loh said. The yen was up 0.25% against the dollar at around 152.905, on track for a fourth ⁠consecutive session of gains. If the yen's strength holds through ⁠to Friday it would mark the largest weekly rise since February 2025. Elsewhere, the Australian dollar traded near three-year highs after the central bank hiked rates and flagged the possibility of more to come as it combats inflation.

The Australian dollar was last down 0.51% versus the greenback at $0.709, which is near $0.7147 - its highest level since ‌February 2023. The Chinese yuan strengthened 0.19% ‌against the greenback to 6.897 per dollar.

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