By Peter Nurse
Investing.com - The U.S. dollar edged lower Thursday ahead of key employment data, while the euro held at a one-month high against the greenback on hopes the Ukraine/Russia conflict is heading towards a de-escalation phase.
At 3:05 AM ET (0705 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 97.810.
The U.S. dollar received a boost Wednesday after data from the ADP Research Institute showed that U.S. companies employed an additional 455,000 people in March, growth which is consistent with the Federal Reserve’s view that the labor market is robust.
This comes ahead of Thursday’s weekly initial jobless claims data and, more importantly, Friday’s monthly official jobs report.
The U.S. Federal Reserve lifted interest rates earlier this month and signaled a series of increases ahead to combat soaring inflation, so long as the economy didn’t retreat into recession, as an inverted yield curve has warned about.
The strength of the labor market suggests the Fed will feel confident about going ahead with more interest rate hikes in the months ahead, to the benefit of the dollar.
USD/JPY traded 0.2% lower at 121.58, stabilizing after climbing to its lowest since November 2015 on Monday, with the Bank of Japan’s intervention to prevent government bond yields from rising too high in stark contrast to the U.S. Federal Reserve’s approach.
“The dollar remains cheap against most G10 currencies in the short-term when short-term rate differentials – normally a key driver of FX moves – are considered,” said analysts at ING, in a note.
Elsewhere, EUR/USD rose 0.1% to 1.1172, with the single currency gaining around 1.6% this week, climbing to its highest level in a month, on increasing hopes that the conflict in Ukraine could be approaching a conclusion.
The peace talks between Ukraine and Russia in Istanbul earlier in the week raised hopes of a breakthrough. And although Russia has continued attacks in the east of the country, its promise to scale down military operations around Kyiv has raised hopes that the conflict could be entering a new phase involving the de-escalation of the violence. New peace talks are also scheduled for Friday.
“At this stage, we doubt there is much geopolitical risk premium left in most assets, as markets appear to have taken an optimistic stance well before peace talks have yielded any result,” ING added.
GBP/USD rose 0.1% to 1.3140, helped by data showing Britain's economy grew more quickly than previously thought in the last three months of 2021, with GDP increasing by 1.3% in the fourth quarter from the previous three-month period, stronger than a preliminary estimate of growth of 1.0%.
AUD/USD fell 0.4% to 0.7479, handing back some of the pair’s earlier string gains, while USD/CNY fell 0.1% to 6.3425 after China’s manufacturing and services sectors simultaneously contracted in March 2022 for the first time in two years.