By Ankur Banerjee
SINGAPORE (Reuters) -The U.S. dollar softened on Thursday in a volatile week as investors contended with bond market jitters while weighing data that showed a weakening labour market, which reinforced expectations the Federal Reserve will cut rates this month.
With the Fed focused on the labour market, Friday’s crucial jobs report will set the tone for the near-term rate outlook after data on Wednesday showed job openings fell to a 10-month low in July, although layoffs remained relatively low.
Traders are pricing in about 97% chance of the Fed cutting interest rates later this month, up from 89% a week earlier, CME FedWatch showed. They are also pricing in 139 basis points of easing by the end of next year.
The softer-than-expected job openings data weighed on the dollar. The euro held onto its overnight gains and last bought $1.165775. After a bruising week, sterling was steady at $1.3442 in early Asian hours.
The Japanese yen last fetched 148.12 per dollar after eking out a small gain in the previous session. The dollar index, which measures the U.S. currency against six other units, stood at 98.178 after easing 0.17% on Wednesday.
Several Federal Reserve officials who spoke on Wednesday said labour market worries continue to underpin their view that rate cuts still lie ahead for the central bank.
James Knightley, ING’s chief international economist, said the Fed is very likely to cut rates meaningfully in the months ahead with little inflation pressure coming from the jobs market. “We expect them to cut 25 bp at the September, October and December FOMC meetings.”
Much of the focus this week has been on the bond market where yields on long-end notes across the globe have risen as investors become increasingly anxious about the fiscal health of major economies from Japan to Britain and the United States.
But the dovish comments from policymakers along with soft labour data spurred a rally in Treasuries, pushing yields lower. U.S. 30-year bond yields were at 4.891% after hitting 5%, the highest in about 1-1/2 months on Wednesday.
Investor focus will also be on an auction of 30-year Japanese government bonds later in the day, a litmus test for investors’ appetite for super-long fixed income. Japan’s 30-year government bond yield was at 3.27%, just below the record high of 3.285% touched in the previous session.
Uday Patnaik, head of Asia fixed income and global emerging market debt in the asset management division of L&G, said the rise in yields reflects poor fiscal conditions in some of the largest advanced economies, where the debt-to-GDP ratio is heading above 100%.
“The problem here is not one of these countries are running a primary surplus, which means revenues cannot even cover non-interest spending,” he said.
“To fix this will necessitate significant cuts in spending or additional revenues, at a time when social and political pressures are running high.”
In other currencies, the Australian dollar was steady at $0.6545, while the New Zealand dollar last bought $0.5881.
(Reporting by Ankur Banerjee in Singapore; Editing by Sonali Paul)
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