The U.S. dollar was on track for its largest weekly decline in 12 weeks on Friday after weaker employment data reduced expectations of an imminent Federal Reserve interest rate increase.
The softer dollar supported several major currencies, including the euro, British pound and Japanese yen.
Dollar Falls After Weak U.S. Jobs Report
The dollar came under pressure after U.S. job growth slowed sharply in June.
Payroll gains from the previous two months were also revised lower, reinforcing concerns that the labour market may be losing momentum.
The weaker data encouraged traders to reduce their expectations for a near-term Federal Reserve rate hike.
Fed Rate Hike Bets Decline
Markets were pricing in around a 45% chance that the Federal Reserve would raise interest rates at its September meeting, according to the CME FedWatch tool.
U.S. Treasury yields also moved lower following the employment report.
The yield on the interest-rate-sensitive two-year Treasury note fell by four basis points, ending a three-day run of gains.
U.S. Treasury markets were closed on Friday for the Independence Day holiday.
Analysts Expect Further Dollar Weakness
Karl Steiner, head of analysis at SEB, said the weaker dollar was consistent with the bank’s outlook.
SEB does not currently expect another Federal Reserve rate increase.
Steiner added that the dollar could experience further declines if incoming economic data continue to weaken.
Euro and Pound Gain Against the Dollar
Broad weakness in the U.S. currency lifted the euro close to a two-week high.
The euro traded near $1.1446 and was approximately 0.5% higher over the week.
Sterling also strengthened, reaching around $1.3355.
The British pound was on course for a weekly gain of 1.1%, its strongest performance in almost three months.
Dollar Index Heads for Biggest Weekly Drop Since April
The U.S. Dollar Index, which measures the currency against a basket of major rivals, fell by around 0.2% to 100.77.
This followed a decline of approximately 0.5% on Thursday.
The index was down about 0.6% for the week, placing it on track for its steepest weekly fall since early April.
Japanese Yen Recovers From 40-Year Low
The weaker dollar also provided relief for the Japanese yen.
The yen strengthened to below 161 per dollar after previously falling to a 40-year low of 162.84.
A sudden recovery on Thursday raised speculation that Japanese authorities may have intervened or were preparing to support the currency.
Yen Intervention Concerns Remain
Investors remained alert to the risk of intervention during a session with reduced liquidity because U.S. markets were closed.
Historically, Japanese authorities have sometimes acted during periods of thin trading, when intervention can have a larger impact on exchange rates.
Steiner said the possibility of official action should remain on investors’ radar.
Japan Warns Currency Traders
Japanese Finance Minister Satsuki Katayama issued a fresh warning to foreign exchange markets on Friday.
She said Tokyo remained in regular contact with Washington regarding currency developments and was prepared to support the yen.
Chief Cabinet Secretary Minoru Kihara also said officials were monitoring market movements with a strong sense of urgency.
Traders Watch for a More Targeted Response
Market participants are concerned that Japanese officials could move away from their usual practice of warning investors well in advance.
Instead, authorities may adopt a more targeted approach aimed at pressuring speculators and increasing the cost of betting against the yen.
Tony Sycamore, an analyst at IG, said the recent 40-year high in the dollar-yen exchange rate may represent a short-term peak.
However, he added that the longer-term outlook will depend on future U.S. economic data and developments in Japan’s government bond market.
