By Rocky Swift
TOKYO (Reuters) -The dollar trimmed its weekly gain on Friday as bond markets stabilised and traders awaited key U.S. jobs data expected to firm up the case for an interest rate cut by the Federal Reserve.
The yen gained after Japan solidified a trade deal with the United States that lowers tariffs on U.S. imports of autos. New Zealand’s kiwi dollar climbed along with Asian shares.
Data on Thursday showing higher-than-expected applications for jobless benefits in the U.S. served as a prelude to the more critical nonfarm payrolls report. Bonds rallied in the U.S., Europe and Japan after fiscal concerns spurred a run-up in long-term yields.
Anxiety over U.S. President Donald Trump’s meddling with Fed policy and his unpredictable tariff regime has made investors shy about holding dollar assets of late, said Bart Wakabayashi, the Tokyo Branch Manager of State Street.
“The dollar remains very, very underweight,” Wakabayashi said. “I do think there is room for the dollar buying to come back at some point. Maybe investors are just waiting for the rate cut to happen and then pile back in.”
The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, dipped 0.1% to 98.14, trimming its gain for the week to 0.4%.
The greenback dropped 0.2% to 148.21 yen. The euro was up 0.1% on the day at $1.1666.
Several Fed officials said labour market worries continue to support their calls for rate cuts, boosting expectations of an imminent easing. The Fed is due to meet on September 16 and 17.
The Labor Department’s Bureau of Labor Statistics (BLS) will report U.S. nonfarm payrolls for August, with economists surveyed by Reuters expecting an increase of 75,000 jobs after a gain of 73,000 in July.
That follows figures on Thursday showing that U.S. private payrolls increased by less than expected in August and jobless claims in the final week of the month were higher than predicted.
“The risk is still tilted to payrolls underperforming U.S. economists’ expectations that will weigh on the USD tonight,” Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, wrote in a note.
Traders are pricing in a near-100% chance of the Fed cutting interest rates later this month, up from 87% a week ago, CME FedWatch showed.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 0.7 basis points to 3.585% in Tokyo trading.
Stephen Miran, Trump’s pick to fill an open seat at the Fed, said he would “not at all” be the president’s puppet when questioned by lawmakers on Thursday about whether he would make interest-rate decisions independently of political pressure.
Trump signed an order on Thursday to implement lower tariffs on Japanese automobile imports and other products that were announced in July. Japan also confirmed its commitment to an annual $7 billion worth of energy purchases from the U.S., a joint statement from the countries showed.
A surge in long-term bond yields of late has signalled increasing concerns about the fiscal health of major economies from Japan to Britain and the U.S.
Those fears abated on Thursday and Friday, with yields falling back to earth. Yields on 2-year and 10-year Treasuries slid to the lowest since May 1.
Yields on Japanese government bonds fell for a second day after a closely watched auction of 30-year debt passed smoothly on Thursday.
Sterling traded at $1.3449, up 0.1%. The Australian dollar rose 0.2% to $0.6526. The New Zealand dollar rose 0.3% to $0.5859.
In cryptocurrencies, bitcoin climbed 1% to $111,472.54, while ether added 0.6% to $4,334.27.
(Reporting by Rocky Swift; Editing by Sam Holmes and Jamie Freed)
