Major currencies were steady within narrow ranges on Thursday, while the U.S. dollar remained near seven-week lows, as investors weighed diplomatic progress in the Middle East against U.S. labor market data that could set the course for the Federal Reserve's interest rates, according to Investing.
The spot dollar index was little changed, after hitting its lowest level since mid-June in the previous session, while the euro and sterling edged lower, and Asian currencies, including the Japanese yen, Chinese yuan and Indian rupee, moved within narrow ranges as investors refrained from making big bets.
This calm reflects a period of relative stability in global currency markets after a summer marked by sharp fluctuations, as investors in recent weeks have dealt with a mix of geopolitical tensions in the Gulf, coordinated interventions by central banks to support currencies, and a reassessment of interest rate expectations by major central banks.
The most notable of these developments was the joint intervention by the monetary authorities in Japan and the United States to support the yen, in the first coordinated move between the two countries since 1998, which contributed to the recovery of the Japanese currency after it had approached its lowest levels in 40 years at around 162 yen against the dollar.
With U.S. Treasury Secretary Scott Bisent confirming that Washington will do whatever it takes to support Tokyo's efforts to stabilize the currency, the yen held steady near 157.7 yen to the dollar, but traders remain hesitant to push it higher, amid expectations that the Bank of Japan will continue to raise interest rates at a gradual pace.
Meanwhile, the geopolitical risk premium in energy-linked currencies has begun to decline, after reports indicated that Iran and Oman had reached a preliminary understanding on shipping routes in the Strait of Hormuz, through which about one-fifth of the world’s oil supply passes, which contributed to Brent crude falling by about 8% in recent sessions.
Lower oil prices have helped support the currencies of energy-importing countries, particularly in Asia and Europe, including the Indian rupee, which continued its recovery to around 95.20 rupees to the dollar, after the Reserve Bank of India kept its main interest rate unchanged at 5.25%, while lowering its inflation forecasts.
Market attention is now focused on US labor market data, including weekly jobless claims due on Thursday and the anticipated non-farm payrolls report on Friday.
With futures markets pricing in a near 48% probability of the Federal Reserve raising interest rates by 25 basis points in September, investors are watching for any signs of a slowing labor market that could limit the dollar's strength in the coming months.
