By Kevin Buckland and Sruthi Shankar
TOKYO (Reuters) – The dollar hovered near a one-week high against other major currencies on Friday after the biggest drop in U.S. jobless claims in nearly a year eased fears of an impending economic slowdown.
The US currency steadied against the Japanese yen after a three-day rally, as strong jobs data expected on Thursday prompted bets on a Federal Reserve interest rate cut later this year to be scaled back.
The yen and the Swiss franc – another safe-haven currency – remained near one-week lows as major stock markets rose and Treasury yields fell.
Markets have had a turbulent week, with surprisingly weak US jobs figures a week ago sending global stocks lower, while demand for safe-haven assets such as the yen and franc pushed those currencies to their highest levels this year on Monday.
“The prospect of a risk-on, FX-friendly environment in the second half of this year is much less interesting given our more conservative outlook on USD/JPY and EUR/CHF,” said Ivan Berthaux, FX strategist at UBS.
“We don’t expect any further significant declines. The decline has been quite pronounced in this environment.”
The dollar fell 0.2 percent to 146.96 yen by 1133 GMT, heading for a gain of about 0.3 percent this week, in what would be its first weekly rise in six weeks.
Sterling fell 0.3% against the Swiss franc to 0.8644 francs but was still on track for a weekly gain of 0.8%.
Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, easing concerns about a labor market breakdown and confirming that the gradual decline is still in place.
The odds of the U.S. Federal Reserve cutting interest rates by 50 basis points at its next policy meeting on Sept. 17-18 have fallen to 55%, from 69% the day before, with a 25-basis-point cut now seen as a 46% possibility, according to CME Group’s FedWatch tool.
Are the short yen positions liquidated?
The yen has risen this month, hitting its highest since Jan. 2 at 141.675 per dollar on Monday, as short-term liquidation intensified following a surprise interest rate hike by the Bank of Japan amid weak U.S. economic indicators.
Commodity Futures Trading Commission figures are expected to provide a clearer indication later Friday of the extent of yen buying that has occurred.
The U.S. dollar index, which measures the currency against six other currencies, was almost flat at 103.20 after three days of gains.
The euro fell slightly to $1.09175, but was little changed from last week. On Monday, it rose to $1.1009 for the first time since Jan. 2.
Sterling fell to $1.2743 after rising 0.5% overnight, pulling it back from its lowest level in more than a month. However, it remained on track to fall for a fourth straight week.
Sterling fell 0.3% to $0.6572, before rising to its highest since July 24 earlier in the session, while the New Zealand dollar hit a three-week high of $0.6035 before settling on the day at $0.6013.