Dollar on the defensive after jobs data, spotlight on Fed By Reuters

By Amanda Cooper

LONDON (Reuters) – The dollar fell on Wednesday ahead of an expected rise in U.S. interest rates, and with bleak jobs data, a standoff over the U.S. debt ceiling and jitters after bank meltdowns clouded the investment outlook.

Data on Tuesday showed that job openings in the United States fell for a third straight month in March and layoffs increased to the highest level in more than two years, giving hope that a weaker labor market may help the Fed fight inflation.

which measures the greenback against six others, it fell 0.25% to 101.61, down for the second day in a row.

The Federal Reserve is widely expected to raise interest rates by 25 basis points when it wraps up its two-day meeting on Wednesday and investors’ focus will be on what policymakers signal they might do next.

Right now, the derivatives market is showing that traders believe this will be the last hike before the Fed goes into rate-cutting mode. The central bank said its actions would depend on incoming data, much of which showed the economy was slowing and price pressures easing, but not enough to warrant an abrupt policy shift.

“Let’s be clear: Pause is not a pivot point. And that’s a salient point worth repeating. Pivot refers to moving into cuts later in the year. We’re not entirely sure of that,” said Jack Janasevic, lead portfolio strategist at Natixis Investment Management.

US financial markets are suffering from a failed weekend in San Francisco First Republic Bank (NYSE:) Plus concerns that the government could run out of cash by June if lawmakers don’t strike a deal to raise the borrowing limit, better known as the debt ceiling.

Very short-term Treasury yields have soared in the past two weeks, as investors sold off any potentially maturing bonds close to the deadline.

“What traders really want to know is whether it’s a ‘one-and-done’ – or that concerns surrounding the US debt ceiling could at least lead to the Fed pausing in June,” said City Index strategist Matt Simpson.

“In fact, I suspect Jerome Powell is going to stick to his hawkish mantra of not going back on a slew of hawkish comments that led up to the blackout period. They can always keep rates flat in June without feeling the need to signal it today, for example,” he said.

Later on Wednesday, the market will take a look at private sector job growth, which could provide a flavor of what to expect from Friday’s employment report, which is expected to show that the US economy created 179,000 jobs in April.

The euro last rose 0.3% to $1.1032, ahead of Thursday’s regular policy meeting by the European Central Bank.

Money markets are showing a roughly 85% chance that the ECB will raise interest rates by 25bp and a 15% chance of 50bp.

Elsewhere, the Australian dollar fell 0.1%, paring some of the previous day’s gains of 0.5% after the Reserve Bank of Australia delivered a surprise rate hike.

The British pound rose 0.3 percent to 1.2509 dollars, and settled against the euro at 88.20 pence.

The Japanese yen rose 0.5% to 135.83 against the dollar, recovering some of its losses last week when the Bank of Japan stuck to its ultra-loose monetary policy.