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By Herbert Lash and Samuel Indyk
NEW YORK/LONDON (Reuters) -The dollar rose on Thursday after data on unemployment benefits again pointed to a resilient U.S. labor market that reinforces the Federal Reserve’s message that interest rates will not be cut in the near term.
The number of Americans filing new claims for unemployment benefits fell more than expected last week, the latest sign of labor market strength despite a recent spike in layoffs.
Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 218,000 for the week ended Feb. 3, the Labor Department said, less than the 220,000 forecast by economists polled by Reuters.
The initial claims data still points to a robust U.S. labor market that has kept dollar strong, said Thierry Wizman, global FX and interest rates strategist at Macquarie in New York.
“The problem here is that we continue to get positive surprises in the U.S. and we’re not getting enough positive surprises in the rest of the world, and certainly not in China,” he said.
“If the dollar is going to weaken, we’re going to need to see some attenuation of the robustness in the U.S. data and some improvement in the data in Europe and China,” he said. “When’s that going to happen? Very, very hard to say.”
Expectations for the U.S. central bank to cut rates by year end have been slashed to 117 basis points (bps) from 140 bps just before the release of last Friday’s blowout jobs report, trading in the overnight Fed funds rate show.
The likelihood of a rate cut in March slipped 2-1/2 percentage points from Wednesday to 16.5%, according to CME Group’s FedWatch Tool. The probability a week ago before the unemployment report was 36.5%.
The dollar index was last up 0.19% at 104.21, after hitting 104.43 following the initial claims report. The euro fell 0.07% to $1.0763.
Higher U.S. Treasury yields also have boosted the dollar, particularly against lower-yielding currencies, such as the yen.
The yen was down about 0.76% versus the greenback at 149.29. It slipped to 149.46 after the initial claims data, its weakest level since Nov. 27.
Bank of Japan Deputy Governor Shinichi Uchida said the central bank was unlikely to raise interest rates aggressively, even after exiting negative interest rates.
“Given that we see UST yields higher in the near term, we see USD/JPY remaining elevated,” said Colin Asher, senior economist at Mizuho.
“Any decline will likely need to wait until closer to the March BoJ meeting. We see April as the more likely timing for a BoJ move and thus a better time to look for USD/JPY to move lower.”
Sterling was down 0.15% at $1.2698.
The yuan held steady despite data that showed China’s consumer prices fell at their steepest pace in more than 14 years in January.
CPI fell 0.8% in January from a year earlier, but rose 0.3% month-on-month, data revealed. Economists polled by Reuters had forecast a 0.5% fall year-on-year and a 0.4% gain month-on-month.
The offshore Chinese yuan rose 0.05% to $7.2158 per dollar, while the onshore yuan rose 0.03% to $7.1965.
(Reporting by Herbert Lash; additional reporting by Samuel Indyk and Brigid Riley; Editing by Stephen Coates, Christina Fincher and Jonathan Oatis)
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