By Ankur Banerjee and Sameer Manekar
SINGAPORE (Reuters) -The U.S. dollar was on the defensive near three-week lows on Friday ahead of payroll data that will likely influence the outlook for rates, while the pound was firm as the Labour party was poised to win a massive majority in the UK general election.
Sterling was last at $1.27705, trading in a tight range during Asian hours but just shy of the three-week high of $1.27765 touched on Wednesday.
Centre-left Labour has already won more than 326 of the 650 seats in parliament, with an exit poll suggesting it would capture about 410 and affording investors some certainty after years of market volatility under the Conservatives.
The pound is up 1% for the week, its best weekly performance since mid-May and remains the strongest-performing major currency against the dollar this year with a gain of 1.2%.
“In the bigger picture, fiscal policy will become a greater issue for the markets,” said Kyle Rodda, a senior analyst at Capital.com.
Rodda said the Labour party will use the mandate to increase taxes and consolidate government spending, a move that could help the Bank of England in containing inflation.
“For now, the markets will just be happy to get an election over and done with, and that should benefit market sentiment.”
The yen rose 0.4% to 160.63 per dollar, for second straight day of gains – something that has not happened since the start of June.
The currency is crawling slowly away from the 38-year low of 161.96 on Wednesday but traders remain on alert for intervention from Japanese authorities.
Finance Minister Shunichi Suzuki said on Friday that authorities will closely monitor both the stock and foreign exchange markets with a sense of urgency.
Traders have been wary of Tokyo intervening in the market to prop up the currency which has lost more than 12% against the dollar this year, weighed down by the wide interest rate difference between Japan and the United States.
Tokyo spent some 9.8 trillion yen in late April and early May to intervene in the currency market when the yen hit a then 34-year low of 160.245 per dollar. Analysts say, however, that authorities will focus on the pace of yen weakening and not just the levels.
PAYROLL AWAITS
U.S. traders return from their July 4th holiday and the spotlight will firmly be on non-farm payrolls, due later on Friday. The report is expected to show an increase of 190,000 jobs in June after a rise of 272,000 in May, according to a Reuters poll of economists.
A slew of economic data showing a cooling U.S. economy has heightened expectations the data-sensitive Federal Reserve will cut rates sometime soon. Traders are pricing in a 73% chance of a cut in September, according to the CME FedWatch tool.
Markets are pricing in potentially two rate cuts this year, although the Fed last month forecast just one rate cut for 2024. Much will depend on upcoming data.
“A softer (payrolls) print should further boost rate cut expectations and add to USD downside,” said Christopher Wong, an FX strategist at OCBC.
The dollar index, which measures the U.S. currency against six rivals, was down 0.15% at 105, at its lowest point since mid-June.
The euro was little changed at $1.082025 as traders refrained from making major bets with France gearing up for the run-off election on Sunday. Polls suggest the far-right National Rally (RN) is likely to fall short of a majority.
The single currency, which has been under pressure since French elections were called in June, is up nearly 1% for the week and on track for its strongest weekly performance of the year.
While worries that RN could gain a majority and introduce big spending increases have receded, the country is headed for a hung parliament which is likely to weigh on sentiment, analysts said.
In other currencies, the Australian dollar rose 0.14% to $0.6736, hovering near six-month highs, while the New Zealand dollar stood at $0.6121. [AUD/]
Bitcoin sank to its lowest in four months and was last down 6.5%, while ether fell 7.6%.
(Reporting by Ankur Banerjee and Sameer Manekar in Singapore; Editing by Edwina Gibbs and Kim Coghill)
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