Today's Edition
(REUTERS)
The dollar looked set to log a sixth straight week of outperformance against other currencies on Friday, underpinned by elevated bond yields and expectations of another strong set of U.S. job numbers, while sterling continued to slide.
A global sell-off in bonds has dominated markets this week, fuelled by fears of a pick-up in inflation, as well as uncertainty over tariffs under the incoming U.S. administration led by Donald Trump.
This has boosted the dollar, and cast a shadow over other currencies, which have recorded steep losses against the greenback.
U.S. 10-year Treasury yields remained elevated on Friday. The yields have climbed around 10 basis points this week to 4.69%.
Currency markets were relatively subdued on Friday, ahead of key U.S. non-farm payrolls data, which investors will watch to confirm their view that U.S. rates could stay higher for longer.
"We think the balance of risks is tilted to the upside for the dollar today, as robust job figures could prompt markets to price out a March cut and potentially push the first fully-priced move beyond June," said Francesco Pesole, ING forex strategist.
The pound continued to slide, and was last at $1.2303.
The dollar has gained 1% this week on the pound, which was battered to a 14-month low on Thursday in tandem with a selloff in gilts and concern about British government finances.
"What makes the current situation particularly noteworthy is that higher interest rates normally help strengthen the currency, so the fact we're seeing the pound weaken even as gilt yields rise goes to demonstrate how nervous investors are right now," Deutsche Bank analysts said in a note.
The dollar also gained 0.45% on the yen this week.
The yen strengthened briefly on Friday to 157.62 per dollar but was last flat around 158.12 per dollar.
Prospects of sustained wage gains in Japan and the boost to import costs from a weak yen have heightened attention within the central bank to rising inflationary pressures that may lead to an upgrade in its price forecast this month, sources said.
In the euro zone, the single currency was flat on the day as well as on the week at $1.0299, but was not trading far from the two-year low of $1.0224 it hit last week.
A significant number of foreign exchange forecasters expect the euro to reach parity with the dollar in 2025, a Reuters poll showed this week.
This left the dollar index set for a sixth consecutive weekly gain, its longest run since an 11-week streak in 2023.
The index was last flat at 109.15, set for a 0.2% weekly rise.
PAYROLLS
U.S. non-farm payrolls data is expected to show the economy added 160,000 jobs in December on top of the 227,000 in November, with unemployment holding at 4.2%.
Anything stronger would add to the case for fewer Federal Reserve rate cuts and may set off another round of selling in jittery bond markets.
Overnight, Philadelphia Fed President Patrick Harker said he expected the U.S. central bank to cut interest rates, but added that an imminent cut was not needed.
Markets expect around 40 bps of Fed rate cuts in 2025.
