By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar weakened against most major currencies on Wednesday after U.S. jobs data for July signaled a weakening labor market, further tipping the scales in favor of bigger interest rate cuts by the Federal Reserve.
Traders raised bets on expectations that the Federal Reserve will cut rates by half a percentage point at its next meeting after reports that job vacancies fell to a 3-1/2-year low in July.
Friday’s U.S. jobs report could provide further clues about the timing and pace of the Federal Reserve’s interest rate cuts.
“The U.S. central bank cannot keep interest rates too high for an extended period of time or it risks serious job losses,” Raphael Bostic, president of the Federal Reserve in Atlanta, said on Wednesday.
The index, which measures the U.S. currency’s strength against six major currencies, fell 0.3% to 101.4. The dollar weakened 1% to 144.07 yen, its lowest in a week, as global financial markets generally shunned riskier assets.
U.S. stocks remained feeble after a keen sell-off on Tuesday, sparked by concerns about the health of the U.S. economy and valuations of the technology sector.
Weak data released Tuesday for the U.S. manufacturing sector helped fuel fears of a difficult landing for the world’s largest economy.
The dollar, which fell more than 2% against a basket of currencies in August, stabilised as rising volatility in global financial markets boosted demand for safer currencies.
“Equity market volatility and falling US Treasury yields led to a strong performance for the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
The dollar index was about 1% above its delayed August low of 100.51.
“USD has rebounded but is afraid to rebound further until more information is released,” Brad Bechtel, global head of FX at Jefferies, said in a note. “After Friday’s print, we’ll be either 100 or lower or 104 or higher in DXY, by my calculations.”
Economists polled by Reuters had forecast Friday’s report would show a gain of 165,000 U.S. jobs in August, following a gain of 114,000 in July.
On Thursday, investors will also be closely monitoring data on the number of unemployment benefits claims.
The euro rose 0.2% to $1.107075, recovering after initial diminutive declines.
Economic activity in the eurozone was boosted by France’s hosting of the Olympic Games last month, but the bloc’s malaise is likely to return after the end of the Paralympics as demand remains feeble, a survey showed.
The Canadian dollar rose 0.3% against the U.S. dollar after the Bank of Canada cut its key interest rate by 25 basis points to 4.25%, in line with forecasts but expressing concern that weaker-than-expected economic growth could mean inflation is falling too quickly.
The pound rose 0.2% to $1.3138, after weakening to a low of $1.3101 overnight.
As investors shunned riskier assets, cryptocurrencies fell Tuesday. Ether fell about 1% to $57,751, while ether fell about 0.8% to $2,444.
