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TOKYO: The dollar fell to its lowest this year against the euro on Wednesday as traders braced for a potentially significant revision in U.S. nonfarm payrolls data later in the day and ahead of a speech by Federal Reserve Chairman Jerome Powell at the end of the week.
The dollar also fell below the closely watched 145 yen level and hovered near a more than one-year low hit overnight. Pressure came mainly from U.S. bond yields, which fell to their lowest since Aug. 5, when yields fell to more than a year lows as unexpectedly weak monthly jobs data stoked recession fears.
“The decline in yield premiums in the U.S. Treasury market is a clear factor contributing to the dollar’s decline,” said Chris Weston, head of research at Pepperstone.
“As we have seen recently in numerous USD pairs, the dollar has found no friends in the market and is in free fall.”
A weak monthly jobs report earlier this month sparked a spike in volatility across asset classes, and market participants braced for another potential shock from revised data due later on Wednesday.
The Aug. 2 nonfarm payrolls report sent traders racing to predict the Fed might need to cut interest rates by half a percentage point at its mid-September policy meeting, with the implied probability of such a move rising to about 71%, according to CME Group’s FedWatch tool.
However, since then, a series of macroeconomic data have improved and the situation has reversed. Currently, 72% of people predict that the Fed will cut interest rates by 25 basis points, while 28% predict that the Fed will cut interest rates further.
Powell’s keynote speech on Friday at the Kansas City Fed’s Jackson Hole economic symposium will be carefully parsed for any hints about the size of next month’s rate cut and whether lower borrowing costs are likely at each subsequent Fed meeting.
The dollar index, which measures the greenback against the euro, sterling, yen and three other major currencies, fell to 101.34, its lowest since Jan. 2, as of 0026 GMT, after falling by 0.5% or more in each of the previous three sessions.
The euro rose to 1.1131 against the dollar, its highest level since December 28.
Sterling hit a high of $1.3054 on Tuesday and is currently trading at $1.3033, a level not seen since July last year.
The dollar fell 0.2% against the yen to 144.98 yen, having earlier fallen to 144.945, breaking below the psychological level of 145 yen for the first time since August 6.
Traders will be closely watching a special session of Japan’s parliament on Friday, when politicians will scrutinize the Bank of Japan’s surprise decision to raise interest rates last month and the central bank’s sudden hawkish shift.
Bank of Japan Governor Kazuo Ueda is due to testify and markets will be watching for his comments after its influential deputy governor Shinichi Uchida took a more dovish stance earlier this month to help calm markets.
The Australian dollar was just below a one-month high of $0.6749 on Tuesday. The New Zealand dollar rose slightly to $0.61585, its highest since July 8.
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