LONDON — The dollar was headed for its third weekly gain in a row and was near two-decade highs against other major currencies, as investors focused on U.S. jobs data due later on Friday that could bolster the case for aggressive interest rate hikes.
The U.S. currency has been riding high since Federal Reserve Chair Jerome Powell said at the Jackson Hole symposium in Wyoming last Friday that rates would need to be high “for some time” to combat inflation.
The dollar index – which tracks the currency against six counterparts – leapt to a fresh 20-year high on Thursday of 109.99, bolstered by robust U.S. data showing a fall in unemployment claims.
The index came off the boil in early European trading hours on Friday, slipping 0.3% to 109.23. However, the index is still on track for a 0.4% weekly gain.
U.S. non-farm payrolls data due at 1230 GMT will be closely watched, analysts said. Economists expect 300,000 jobs were added in August, which would extend a strong run of data.
“We would have to see clearer signs of an economic downturn in the US with the addition of more cautious comments on the part of the Fed to end the USD rally,” You-Na Park-Heger, currency analyst at Commerzbank, said in a note.
Fed funds futures are pricing about a 75% chance that the Fed hikes rates by 75 bps this month and it has been a week of heavy selling in the U.S. Treasury market.
The moves have supported the dollar’s march on the yen in particular, since Japan’s yields are anchored near zero.
The dollar surged above 140 yen for the first time since 1998 on Thursday, and the yen fell to a fresh trough of 140.43 on the day. It was last broadly flat at 140.305.
Japan’s government will take “appropriate” action as needed, Japanese finance minister Shun Suzuki said on Friday.
The euro retraced some of the previous day’s losses against the dollar and inched back above parity, up 0.6% to $1.00045.
The European Central Bank is due to meet next week, with money markets betting on an unprecedented 75 basis point hike.
Sterling edged up 0.2% on the day versus the dollar at $1.15670, but remains down around 1.4% this week. Britain’s new prime minister will be announced on Monday, when the ruling Conservative Party’s leadership contest concludes, which could prompt further pound moves.
(Reporting by Iain Withers, Additional reporting by Tom Westbrook in Singapore; editing by Philippa Fletcher, William Maclean)