By Kevin Buckland
TOKYO (Reuters) – The dollar fell to its lowest level this year against the euro on Wednesday as traders braced for potentially crucial revisions to U.S. jobs data later in the day, ahead of a speech by Federal Reserve Chairman Jerome Powell at the end of the week.
The US currency also fell below the closely watched 145 yen level and hovered near its lowest level in more than a year against the pound overnight.
Pressure came in particular from U.S. bond yields, which hit their lowest levels since Aug. 5, when yields collapsed to their lowest in more than a year after surprisingly weak monthly jobs figures sparked recession fears.
“The decline in the yield premium in the US Treasury market was a clear factor in pushing the US dollar lower,” said Chris Weston, head of research at Pepperstone.
“As we have seen in many USD pairs lately, the USD is unable to find a friend in the market and is in free fall.”
A weak monthly payrolls report earlier this month served as a catalyst for higher volatility across asset classes, leaving market participants bracing for another potential shock with revised data due later on Wednesday.
The August 2 payrolls report has sent traders racing to price in the odds that the Federal Reserve will need to cut interest rates by a half-percentage point at its mid-September policy meeting, pushing the implied probability of such a move to about 71%, according to the CME Group (NASDAQ:) FedWatch tool.
But a string of better macroeconomic data since then has flipped the odds, with bets now at 72% for a quarter-point cut and 28% for a larger cut.
Powell’s keynote speech on Friday at the Kansas City Fed’s Jackson Hole Economic Symposium will be closely watched for any hints about the likely size of next month’s rate cut, and whether borrowing costs are likely to be lowered at each subsequent Fed meeting.
The pound, which measures the currency’s value against the euro, pound, yen and three other major currencies, fell to its lowest since Jan. 2 at 101.30 before recovering to 101.48 by 0450 GMT. It had fallen 0.5% or more in each of the previous three sessions.
The euro rose to $1.1132, its highest since Dec. 28, before retreating to $1.1118.
The pound was steady at $1.3027, down 0.05% from Tuesday when it touched a high of $1.3054, a level last seen in July last year.
The dollar was volatile against the Japanese currency, falling 0.21% to 144.945 yen at one point, before last trading 0.35% higher at 145.75 yen.
Traders will be closely watching a special session of Japan’s parliament on Friday, when politicians will examine the Bank of Japan’s unexpected decision to raise interest rates last month and the central bank’s surprise shift in monetary policy.
Bank of Japan Governor Kazuo Ueda is due to testify, and focus will be on his tone after his influential deputy Shinichi Uchida adopted a more dovish stance earlier this month, helping to calm markets.
Ryota Abe, an economist at SMBC Bank, expects the dollar to weaken to 138 yen by the end of next year, but said the decline in 2024 has already come to an end.
“We believe the pair will move around the 145 level this year. In order to see the pair fall further, the pace of rate cuts by the Fed this year is of great importance,” he said.
“High volatility may come from the Bank of Japan, but we must understand that the bank has already announced that it will continue raising interest rates to around 1%,” from around 0.25% currently.
More than half of economists in a Reuters poll released on Wednesday expect the Bank of Japan to raise interest rates again this year, with those with a view on the month leaning toward a December increase.
The Australian dollar hovered just below a one-month high of $0.6749 hit on Tuesday, and was last trading at $0.6747.
The New Zealand dollar touched its highest since July 8 at $0.61585 early in the session before falling 0.19 percent to $0.61435.