Key points
The dollar faced pressure on Thursday following U.S. economic data that indicated slowing growth. Despite this, the yen remained weak, pinned near a 38-year low, prompting concerns about possible government intervention.
The euro stayed close to a three-week high against the dollar, while sterling strengthened ahead of UK elections.
Picture: Dollar index trading at 104.943 as seen on the VT Markets app.
The dollar index (DXY), which measures the greenback against a basket of currencies, was flat at 105.28 after briefly dropping to 105.04, its lowest since June 13. Recent U.S. economic data, including a weak services report and a disappointing ADP employment report, painted a picture of a slowing economy. Initial applications for U.S. unemployment benefits also increased last week.
The U.S. economy is showing signs of slowing, with the labour market beginning to exhibit slackness, along with easing activity and inflationary pressures.
U.S. Treasury yields fell on Wednesday, reflecting the market’s response to the soft economic data. Despite the decline in the dollar and yields, the yen (USD/JPY) remained near a low of 161.96 per dollar, its weakest level since December 1986. This has led traders to prepare for potential Japanese government intervention, especially with U.S. markets closed for the July Fourth holiday.
The structural issue favouring a weaker yen remains, as the Bank of Japan is set to normalise interest rates only at a gradual pace, encouraging traders to push the dollar higher against the yen.
Also read: Japanese authorities signal potential intervention in the face of weak yen
The Japanese currency last strengthened 0.11% against the greenback to 161.53. The yen was also near an all-time low of 174.48 against the euro (EUR/JPY) reached on Wednesday.
Elsewhere, sterling (GBP/USD) held its ground ahead of UK elections, trading at $1.2744, up 0.03% on the day. Britain looks set to elect Labour Party leader Keir Starmer as its next prime minister, potentially ending the Conservative Party’s 14-year tenure.
The euro (EUR/USD) rose 0.04% to $1.079, maintaining its three-week high against the dollar. In the cryptocurrency market, Bitcoin (BTC/USD) increased by 1.41% to $60,376.65.
With the U.S. nonfarm payrolls report expected to show an increase of 190,000 jobs in June, a potential slowdown in job growth is anticipated. The yen’s situation requires ongoing vigilance for possible Japanese government intervention, especially given its historical precedents during illiquid trading periods.
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