Rate cut bets pin dollar near one-week lows vs yen

July 04, 2019 00:00:00

LONDON, July 03 (Reuters): The dollar slipped to a one-week low against the Japanese yen on Wednesday, undermined by the steady fall in US Treasury bond yields, fading optimism over the Sino-US trade deal and the possibility of fresh tariff hostilities with Europe.

Meanwhile the Swedish crown briefly jumped to a 2-1/2 month high versus the euro after the central bank said it was on track to tighten policy by early 2020.

Against a basket of six major currencies, the dollar pulled back from two-week highs scaled on Tuesday .DXY as US bond yields extended the previous day's heavy fall, with 10-year yields hitting 2-1/2-year lows below 1.94 per cent.

"Traders don't want to take big bets before the US jobs data with the Swedish central bank providing the only surprise for currency markets by signaling a confident economic outlook," said Lauri Hallika, a fixed income and currency strategist at SEB in Stockholm.

Sweden's central bank held its line on policy tightening by year-end or early-2020, noting a "good" inflation and economic outlook.

The comments prompted traders to unwind a five basis point probability of a rate cut in the bond futures market, pushing the currency higher.

The Swedish crown rallied to 10.4890 EURSEK=D3 against the euro and into positive territory versus the dollar SEK=D3.

The yen firmed 0.23-- Reuters to the dollar JPY=D3 at 107.6 yen as investors grew more skeptical about the possibility of a speedy resolution to the trade war, especially given US President Donald Trump's comments that any deal would have to be tilted in favor of the United States.

The global investor spotlight will move to US non-farm payrolls data due on Friday, which economists expect to have risen by 160,000 in June, compared with a 75,000 May increase.

Expectations have grown that the Fed will embark on its first rate cut in a decade at a policy review this month. Markets are assigning a more than a 70 per cent probability of a quarter point rate cut at its next policy meeting in July.