Currency markets drifted on Thursday with the Japanese yen retracing some intervention-led gains and the dollar edging away from a six-week low, as investors awaited more details on a proposed U.S.-Iran deal and looked ahead to Friday's U.S. jobs report. The yen was a touch softer at 157.85 per dollar following modest declines over the past two sessions. It has now given back some intervention-driven gains after touching 155.20 per dollar on Monday, but remains well off a multi-decade low of almost 164 reached in July.
"Stretched positioning, the involvement of the U.S. and the fact that the yen is historically undervalued all suggest that the current round of intervention has a better chance of propping up the yen for longer than some previous ones," said Jonas Goltermann, chief markets economist at Capital Economics. The euro was down about 0.1% at $1.1542 and sterling fell a similar amount to $1.3460. The dollar index , which tracks the U.S. currency against six major peers, was up 0.1% at 99.77, edging higher after it hit a six-week low on Monday.
Markets remained watchful as tensions continued to play out in the Gulf, after Reuters reported a proposed deal between Iran and Oman to help end the U.S.-Iran conflict could give Tehran control over inbound traffic through the Strait of Hormuz. However, there was no immediate U.S. comment on the proposal. President Donald Trump has said a deal to reopen the strait was imminent, but U.S. officials have repeatedly insisted they would never agree to Iran controlling access to the world's most important trade route for energy supplies. Brent crude inched higher to around $80.20 a barrel, although prices remain well below the almost $100 per barrel hit in July when tensions between Iran and the U.S. flared. "We haven't got the oil market volatility that has really been the key driver of most markets in recent days and weeks," Ray Attrill, head of FX strategy at National Australia Bank, said in a podcast.
Investors are now also turning their focus to U.S. payroll data that could provide more clues on the Federal Reserve's interest rate path, after data showed the country's services sector stayed strong in July while services-sector employment slowed. Keep Watching
A divided Fed left rates unchanged last month but Chair Kevin Warsh delivered an unwavering commitment to bring inflation lower, leaving the door open to a possible rate hike in September. "Any data release after the Fed meeting in July is just very important," said ING FX strategist Francesco Pesole. "Tomorrow's payrolls could be pretty big for dollar-yen. If it's a hot print then you would probably start to see a new build up of speculative longs on dollar-yen."
A Reuters survey of economists expected July's employment report (USNFAR=ECI), opens new tab on Friday to show nonfarm payrolls increased by 80,000 jobs in July after rising 57,000 in June. The unemployment rate (USUNR=ECI), opens new tab is forecast to hold steady at 4.2%.
Fed Governor Lisa Cook said on Wednesday that she was open to the idea that the central bank may need to raise its short-term interest rate target to deal with "too high" levels of inflation in the U.S. economy.
