For the first time in more than a month, US dollar bulls are on their back foot.
The greenback snapped a five-week rally, its longest this year, after a report showed US worker pay rose at the slowest pace on record, damping speculation that the US Federal Reserve will boost interest rates next month from near zero.
A gauge of the greenback touched a two-week low on Friday, capping a week of losses for the dollar against most of its major peers. Traders are looking ahead to manufacturing and employment data next week for indications of whether the economy is strong enough to justify the Fed’s first hike since 2006.
“The dollar is in full-fledged retreat,” said Stephen Casey, a New York-based senior foreign-exchange trader at Cambridge Global Payments, a currency and payments provider.
Tepid wage growth “is going to put more pressure on the jobs report next week, because it really has to be strong to continue to move toward that September rate hike,” Casey said.
The Bloomberg Dollar Spot Index dropped 0.1 percent this week to 1,208.4. The US currency was little changed on the week at US$1.0984 per euro in New York and ¥123.89.
The greenback wiped out its weekly gain on Friday after labor data dashed projections that an improving job market would boost pay. The 0.2 percent rise in wages and salaries was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, US Department of Labor statistics showed.
The figures may limit the Fed’s ability to boost borrowing costs next month, Casey said.
The Federal Open Market Committee will tighten policy when it sees “some further improvement in the labor market,” and is “reasonably confident” inflation will move back to its 2 percent goal over the medium term, it said in a statement on Wednesday.
The central bank’s next scheduled announcement on interest rates is Sept. 17.
Traders are pricing in a 38 percent probability that the Fed will raise interest rates next month, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
The British pound climbed against the dollar this week as investors prepared for an unprecedented flood of Bank of England data on a single day next week that BNP Paribas SA said should support the British currency.
Sterling advanced 0.9 percent versus its US peer and made gains against most of the currencies of the UK’s developed-market counterparts. The BOE is changing its policy of staggering releases over two weeks and instead will publish simultaneously its policy decision, economic forecasts, minutes of the Monetary Policy Committee meeting and officials’ votes on Thursday.
The pound added 0.3 percent to US$1.5644 on Friday as of 5:07pm London time.
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