The US dollar fell in early European trading on Friday ahead of a key monthly jobs report, while the British pound rose after the UK general election result.
At 03:55 ET (07:55 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.4% at 104.635, near its lowest level since mid-June.
Dollar dips ahead of payrolls data
The US dollar fell to a two-week low as traders returned from the US Independence Day holiday ahead of the widely watched monthly jobs report, looking for further clues on when interest rates will start to be cut.
Economic data this week has been showing a slowdown in the US economy, raising expectations that the Federal Reserve will cut interest rates soon.
Traders are pricing in a 73% chance of a rate cut in September, according to the CME FedWatch tool.
Economists expect the U.S. economy to add 189,000 new jobs in June after a larger-than-expected gain of 272,000 jobs the previous month.
“We believe the risks are tilted towards a weaker reading today following the large decline in the employment component of the ISM services index,” analysts at ING said in a note.
“But to see a significant repricing of Fed rate expectations to the dovish side, we would need to see payrolls slow below 150,000, given the Fed’s June chart and the increasingly likely prospects of a Trump win in November that act as a hawkish counterweight.”
Sterling rises on election certainty
Sterling rose 0.2% to 1.2780, just below a three-week high of 1.2777 hit earlier, after the opposition Labour Party won a landslide victory in the UK general election, ending 14 years of power for the Conservative Party.
Sterling rose 1% on the week, its best weekly performance since mid-May, as the expected change in government was seen as an opportunity for some certainty, despite the difficult financial situation, after years of market volatility under the Conservatives.
“We believe that the new chancellor will be able to avoid spending cuts thanks to minor adjustments to the fiscal rules and minor tax adjustments. However, avoiding future tax increases will be complicated,” according to ING.
“But what matters most to the pound is the implications of Bank of England policy. At the moment, there are none.”
The pound rose 0.2% against the US dollar to 1.0827, gaining ahead of the second round of parliamentary elections in France on Sunday, where opinion polls suggest the far-right National Rally is likely to fail to secure a majority.
The single currency, which has been under pressure since the French elections were called in June, rose about 1% this week as fears eased that the Republican Party could secure a majority and deliver big spending increases.
“We see some room for the pair to move higher on the back of the potential for disappointing US employment data,” said ING. “While EUR/USD could move into the upper half of the 1.08/1.09 range today, we believe the ongoing risk of French bond spreads widening again after Sunday’s second round of elections means that the upside remains limited.”
Yen waiting for intervention
In Asia, the Australian dollar fell 0.3% to 160.84, as the yen strengthened, raising speculation about whether the Japanese government intervened to support the currency.
The recent weakness in the yen has been driven by growing bets that the Bank of Japan will have little room to tighten monetary policy further, amid continued weakness in the Japanese economy.
The Chinese yuan rose slightly to 7.2674, with the yuan remaining around its lowest levels in seven months.
Sentiment towards China was further hurt by reports that Beijing had seized a Taiwanese fishing vessel and also deployed aircraft around the Taiwan Strait.
Any escalation in tensions with Taiwan would lead to greater scrutiny of China, attracting more sanctions from the West.
