The U.S. dollar traded slightly higher against major peer currencies on Thursday, including the Japanese yen, as investors waited for Friday’s key nonfarm payrolls report. The data is expected to provide fresh clues on the strength of the U.S. labor market and the likely direction of interest rates.
Figures released on Thursday showed that new applications for U.S. unemployment benefits rose moderately last week, pointing to still contained layoffs. Earlier data from the Labor Department also showed job openings falling more than expected in November, while hiring activity eased.
Fed outlook keeps markets cautious
According to Marvin Loh, senior global market strategist at State Street, investors are looking for clearer signals on the economy’s direction. He noted that market consensus still expects the dollar to weaken over time, given expectations of further interest rate cuts by the Federal Reserve.
The dollar rose 0.12% against the Japanese yen to 156.925. The dollar index, which tracks the greenback against six major currencies, gained 0.08% to 98.802, its highest level since mid-December.
Markets are currently pricing in at least two interest rate cuts by the Federal Reserve this year, even though Fed officials indicated in December that only one cut may occur in 2026. The central bank is widely expected to hold rates steady at its meeting later this month. Jerome Powell’s term as Fed chair ends in May.
Loh added that currency markets may remain range-bound until there is greater clarity on whether the Fed will resume easing and whether it will move more aggressively once new leadership is in place.
Political risks and debt concerns
The dollar could face pressure if the U.S. Supreme Court rules against tariffs imposed by President Donald Trump, potentially forcing refunds to importers. Trump also said on Wednesday that the 2027 U.S. military budget should reach $1.5 trillion, raising concerns about rising public debt and increased risk premiums on U.S. assets.
Euro weakens on inflation and geopolitics
In Europe, softer inflation data pushed the euro lower and sent German Bund yields to a one-month low. The euro fell 0.09% to $1.1665, extending losses from the previous two sessions.
Societe Generale strategist Olivier Korber said subdued inflation reinforced dovish sentiment, while tensions linked to Greenland highlighted Europe’s vulnerability, potentially triggering further euro selling.
U.S. Secretary of State Marco Rubio said President Trump retained the option of pursuing control of Greenland by military means, prompting concern among European allies including France and Germany.
Elsewhere, the dollar gained 0.06% against the Swiss franc to 0.798. The Australian dollar slipped 0.38% to $0.66945, while the Chinese yuan strengthened 0.15% to 6.984 per dollar.
