Investing.com – The U.S. dollar fell in early European trading on Friday ahead of the release of a key monthly jobs report, while sterling rose slightly following the announcement of the U.K. general election results.
At 03:55 ET (07:55 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.4% at 104.635, near its lowest level since mid-June.
Dollar outpaces payrolls
The dollar held near a two-week low as investors returned from the U.S. Independence Day holiday ahead of the much-talked-about monthly jobs report, looking for further clues as to when interest rates will be cut.
Economic data this week showed a slowdown in the U.S. economy, which has raised expectations for an imminent Fed interest rate cut.
According to the CME FedWatch tool, investors are pricing in a 73 percent probability of an interest rate cut in September.
Economists predict the U.S. economy will expand by 189,000 people in June, following a bigger-than-expected gain of 272,000 people the previous month.
“In our view, risks are tilted towards a softer reading today following a large decline in the employment component of the ISM services index,” ING analysts said in a note.
“However, to see a meaningful revision to the dovish side of Fed rate expectations, we may need to see the payroll drop below 150,000, given the June Fed Dot Plot and the rising perceived likelihood of a Trump win in November acting as hawkish counterweights.”
Pound Sterling Gains on Election Certainty
rose 0.2% to 1.2780, just below the three-week high of 1.2777 set earlier this month after the opposition Labour Party won a clear majority in the UK general election, ending 14 years of Conservative rule.
The pound rose 1% on the week, its best performance since mid-May. The expected change of government is seen as a chance to bring some certainty despite a arduous fiscal situation, after years of market volatility under the Conservatives.
“We believe the new chancellor can avert spending cuts with small changes to fiscal rules and minor tax adjustments. However, it will be difficult to prevent tax increases in the longer term,” ING said.
“But what matters most for sterling is the implications for Bank of England policy. And there are none at the moment.”
rose 0.2% to 1.0827, gaining ground ahead of Sunday’s second round of France’s parliamentary election. Polls suggest the far-right National Rally is unlikely to win a majority.
The common currency, which has been under pressure since France announced elections in June, has gained about 1% this week as fears that the National Council could win a majority and implement a major spending augment faded.
“We see some upside potential for the pair on the back of potential disappointment in US payrolls,” ING said. “While EUR/USD could move into the upper half of the 1.08/1.09 range today, we believe the lingering risk of renewed widening in French bond spreads following Sunday’s second-round elections means upside potential remains limited.”
Jen on emergency observation
In Asia, the yen fell 0.3% to 160.84, with the yen’s strengthening sparking speculation that the Japanese government would intervene to support the currency.
The yen’s recent weakening was driven by growing concerns that the currency would have narrow room to maneuver in further monetary policy tightening amid continued weakness in the Japanese economy.
The yuan rose slightly to 7.2674, and was hovering near a seven-month low.
Attitudes toward China have further deteriorated following reports that Beijing seized a Taiwanese fishing boat and sent planes into the Taiwan Strait.
Any escalation of tensions with Taiwan could result in increased scrutiny by China and greater sanctions from the West.
