Dollar Steadies as Labour Market Cools, Pound Rises on UK Economic Growth

On Friday, the dollar found its footing after experiencing overnight losses fueled by U.S. data signaling a cooling labour market. Meanwhile, the British pound edged higher following robust first-quarter economic performance in the UK.

Dollar Performance

Against the Japanese yen, the dollar regained some ground, trading at 155.68 yen, marking a 0.15% increase. However, it failed to reach Thursday’s peak of 155.95. The euro remained relatively steady at $1.0783, maintaining its overnight gain of 0.3%. The dollar index, tracking the greenback against six major currencies, showed minimal movement at 105.22 after a 0.3% dip on Thursday.

Labour Market Concerns

The dollar’s retreat was prompted by U.S. data revealing a surge in initial claims for state unemployment benefits, reinforcing expectations of impending interest rate cuts by the Federal Reserve. Investors responded by flocking to stocks and bonds, driving down yields.

Pound Strengthens on Economic Growth

Positive economic data from the UK bolstered the pound, which rose 0.1% to $1.2537. The UK economy surpassed expectations, expanding by 0.6% in the first quarter, signaling an exit from a mild recession. Despite a brief dip following the Bank of England’s interest rate decision, the pound rebounded on the back of encouraging economic indicators.

Yen Weakness Continues

The yen remained under pressure, poised to lose approximately 1.7% against the dollar for the week. Traders remained skeptical of Japanese authorities’ efforts to support the currency, despite reports suggesting substantial intervention to stem its decline. Japan’s Finance Minister reiterated the government’s readiness to intervene if necessary, underscoring ongoing concerns in the forex market.

Upcoming Data Releases

Next week, market participants will closely monitor the April U.S. producer price index and consumer price index for insights into inflation trends. Any indications that inflation is veering away from the Fed’s 2% target could further shape market expectations regarding interest rate adjustments.