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U.S. dollar drifts higher from multi-month lows, yen gains

The dollar languished at its lowest since April against the euro and sterling on Tuesday as signs of a softening U.S. economy boosted the case for earlier Federal Reserve interest rate cuts.

CFOTO | Future Publishing | Getty Images

The U.S. dollar on Tuesday edged higher from its more than two-month lows against the euro, sterling and Swiss franc, as investors consolidated gains in other currencies ahead of a key nonfarm payrolls report later this week.

The greenback, however, pared gains against a basket of currencies led by the euro, extending losses versus the yen after U.S. job openings fell more than expected in April to their lowest in more than three years, according to the Job Openings and Labor Turnover Survey, or JOLTS report.

Job openings, a measure of labor demand, were down 296,000 to 8.059 million on the last day of April, the lowest since February 2021.

Market participants had their focus on the JOLTS data ahead of Friday’s U.S. job report, which is expected to show 185,000 new jobs created in May, up from 175,000 in April.

“I would look at what’s coming now as basically noise ahead of the important data coming out, which is the jobs report, on Friday and the Federal Reserve meeting next week,” said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey. “Certainly we had the JOLTS data which was pretty weak. That is still good news for the Fed.”

The JOLTS report followed data on Monday showing a second straight month of slowdown in manufacturing activity and an unexpected decline in construction spending.

U.S. factory orders, on the other hand, rose for a third straight month in April, boosted by demand for transportation equipment. Data showed factory orders rose 0.7%, matching the revised pace in March.

In afternoon trading, the dollar index was up 0.1% at 104.12, having fallen to its lowest since mid-April overnight at 103.99.

The euro, the biggest component in the dollar index, fell 0.2% to $1.0879.

The European Central Bank is holding a meeting on Thursday and is widely expected to cut interest rates.

The Bank of Canada is meeting on Wednesday and investors see a roughly 80% chance the BoC would cut its benchmark interest rate for the first time since March 2020.

The U.S. dollar was last up 0.4% at C$1.3682.

“If the BOC and the ECB cut rates, which are already priced in, I would focus on the tone of the statement and see if there is a divergence from the Fed. That is really the key more than the cuts,” Epstein said.

Yen rises to 3-week high

The yen, on the other hand, rose to a three-week peak against the greenback, as Bank of Japan officials warned they are keeping a close eye on the currency, and a Bloomberg report said the central bank could soon discuss reducing bond purchases.

The dollar was last down 0.8% at 154.74 yen.

BOJ Deputy Governor Ryozo Himino said on Tuesday the central bank must be “very vigilant” to the impact of the yen’s fluctuations on inflation, in guiding monetary policy.

Bloomberg said the BOJ would address slowing its bond purchases at its two-day policy meeting next week. That could push up yields in the coming weeks and may come before an interest-rate hike in July.

Alex Loo, FX and macro strategist at TD Securities in Singapore, said investors are also likely unwinding carry trades, leading to gains in the yen and Swiss franc, given Monday’s losses in the Indian rupee and Mexican peso after the recent election results.

In carry trades, investors borrow in low-yielding currencies such as the yen or Swiss franc to purchase higher-yielding ones such as emerging market currencies.

The Mexican peso was still down on the day against the dollar, but not as much as on Tuesday when losses were more than 4%. The dollar was last up 1.1% at 17.857 pesos.

The Indian rupee also fell versus the greenback, which last traded up 0.5% at 83.524 rupees, amid a lack of clarity about the performance of the alliance led by Indian Prime Minister Narendra Modi after it lost its outright majority.

In Britain, sterling hit its highest since mid-March at $1.2818 before falling to sit 0.3% lower at $1.2777.

Against the Swiss franc, the dollar also slid to its lowest since March of 0.8884 francs. It was last down 0.7% at 0.8898 francs. Data showed Swiss inflation held steady at 1.4% year-on-year in May.

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