The dollar weakened against most currencies following the release of economic data indicating further softness in the U.S. labor market. Concurrently, the pound rebounded from earlier lows subsequent to the Bank of England (BoE) signaling the possibility of an interest rate cut.
Weekly initial claims for state unemployment benefits rose by 22,000 to a seasonally adjusted 231,000, exceeding economists’ expectations of 215,000. This data, coupled with last week’s weaker-than-expected U.S. payrolls report and a decline in job openings to a three-year low in March, underscored a trend toward a softer labor market. Market observers interpreted this as a potential precursor to a slowdown in consumer spending, thereby helping to mitigate inflation. The upcoming week will feature readings on consumer prices (CPI), producer prices (PPI), and retail sales, which will provide further insights.
Karl Schamotta, chief market strategist at Corpay in Toronto, noted a “knee-jerk reaction” in yields and the dollar lower in response to the higher-than-expected jobless claims number. He attributed this reaction to seasonal distortions in the claims report and a broader trend indicating a deceleration in the U.S. economy.
Federal Reserve Bank of San Francisco President Mary Daly’s comments asserting a “really healthy” labor market and persistent inflation had little impact on the greenback.
The dollar index, gauging the greenback against a basket of currencies, slipped 0.22% to 105.28, while the euro advanced 0.28% to $1.0775.
Sterling strengthened against the dollar, reaching $1.2518, following the U.S. data. Earlier, it had dropped to $1.2446, its lowest level since April 24, in response to the BoE’s announcement. The BoE’s Monetary Policy Committee voted 7-2 to maintain the key policy rate at 5.25%, with Deputy Governor Dave Ramsden and Swati Dhingra advocating for a cut to 5%. BoE Governor Andrew Bailey hinted at the possibility of a rate cut beyond market expectations.
Against the Japanese yen, the dollar inched up 0.03% to 155.52, with hawkish sentiments from Bank of Japan members tempering the yen’s decline. The yen had earlier strengthened to 155.15 per dollar, following the BOJ’s April policy meeting summary, indicating a predominantly hawkish stance. BOJ Governor Kazuo Ueda emphasized the central bank’s monitoring of recent yen depreciation trends in guiding monetary policy.
Deutsche Bank’s head of FX research, George Saravelos, reiterated the yen’s fundamental backdrop, emphasizing the need for the BOJ to hasten policy normalization to impact the yen significantly.