What’s going on here?
The dollar hit a one-week high against major currencies following a significant drop in US jobless claims.
What does this mean?
The US dollar is strengthening, buoyed by falling initial jobless claims which suggest a stable labor market. The currency’s upward climb against the Japanese yen marked its fourth consecutive day of gains, fueled by rising Treasury yields. This shift comes amid reduced expectations for Federal Reserve rate cuts this year. Meanwhile, traditional safe-haven currencies like the yen and Swiss franc slipped to one-week lows as Wall Street’s latest rally brightened the macroeconomic outlook.
Why should I care?
For markets: Currency shifts signal changing tides.
The dollar was up 0.27% at 147.66 yen, on track for a 0.8% weekly advance despite Monday’s 1.5% dip. It also remained steady against the Swiss franc, poised for a 1% gain this week. Initial US unemployment claims dropped by 17,000 to 233,000 – the largest fall in nearly 11 months – beating forecasts and calming fears of an economic downturn. Consequently, the likelihood of a 50-basis-point Fed rate cut in September decreased to 54%, while the chance of a 25-basis-point cut rose to 46%, according to CME Group’s FedWatch Tool.
The bigger picture: Global currency dance.
The yen, which had surged to its strongest level since January 2 due to a surprise rate hike by the Bank of Japan and weak US economic indicators, fell as traders moved away from safe-haven assets. The dollar index, flat at 103.30 after rising to 103.54 overnight – the highest since August 2 – reflects this global shift. Meanwhile, the euro and sterling were stable despite fluctuations earlier in the week. The Australian dollar saw a slight decrease but remained up 1.24% for the week, boosted by hawkish comments from the Reserve Bank of Australia.
