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Dollar Holds Steady Ahead of US Jobs Report; Euro Steadies Post-ECB Cut

On Thursday, the dollar maintained a sideways trajectory in anticipation of Friday’s release of U.S. employment data, crucial for the Federal Reserve in determining its future policy moves. Meanwhile, the euro remained stable following the European Central Bank’s expected rate cut.

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The euro saw a modest rise of 0.17% to $1.0887, nearing the 2-1/2 month peak of $1.0916 reached earlier in the week. Against the Japanese yen, it experienced a slight decline of 0.09%, settling at 169.57 yen.

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The dollar index, measuring the greenback against a basket of currencies including the yen and euro, edged down by 0.09% to 104.16. The market reaction was subdued even after reports showed a higher-than-expected increase in unemployment benefit applications to 229,000, surpassing last week’s upwardly revised figure of 221,000.

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Weekly jobless claims exceeding expectations contributed to the ongoing narrative of easing labor market tightness, potentially beneficial for inflation and leading to a slight decrease in benchmark U.S. Treasury yields.

In the eurozone, inflation has moderated recently, hovering slightly above the European Central Bank’s 2% target. This slowdown, attributed to lower fuel costs and improved supply chains post-pandemic, has prompted speculation about the need for further ECB easing. However, recent signs of sticky inflation have introduced uncertainty into this narrative.

Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, noted that the ECB’s actions were largely in line with expectations, leading to minimal adjustments in interest rate differentials between the eurozone and the U.S. While the dollar typically weakens ahead of the monthly employment release, it often rebounds thereafter.

Elsewhere, the Canadian dollar strengthened by 0.11% to C$1.37 per U.S. dollar following the Bank of Canada’s anticipated rate cut.

Looking ahead to the U.S. jobs report on Friday, investors are weighing various economic indicators, including moderating employment growth juxtaposed with increased activity in the service sector. The Federal Reserve is not expected to implement rate cuts during its upcoming meeting next week, with markets currently pricing in two 25 basis points cuts by the end of the year, starting potentially in September.

The yen remained firm at 155.65 per dollar, supported by remarks from Bank of Japan Governor Kazuo Ueda suggesting a potential reduction in the central bank’s bond buying as it navigates an exit from its expansive monetary policy. The Bank of Japan’s monetary policy meeting next week will be closely monitored for further signals.

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