The dollar edged down against most major currencies on Friday as investors awaited non-farm payrolls data for signs of whether the US economic upturn can weather a new range of headwinds. The dollar has gained steadily against a basket of currencies since Britain's referendum vote two weeks ago to leave the European Union, while sterling, the euro and higher-risk currencies including the Australian dollar suffered.
But set against the dollar's status as one of the world's safe havens for capital in uncertain economic times has been an almost complete retreat in any expectations for rises in interest rates this year. "People are just waiting to see if the payrolls numbers confirm the baseline which is that the growth trend is lower and that the Fed will go very slowly on rates," said Josh O'Byrne, a strategist with Citi in London.
"To change that consensus, we would probably need a very strong number. That would be the biggest reaction I think." By midday in London, the dollar index was down 0.2 percent at 96.134 points. The euro was flat at $1.1065 while sterling, down more than 13 percent since Britain voted to leave the European Union on June 23, gained almost half a percent to $1.2935.
The first survey of consumer sentiment taken since the Brexit vote showed British consumer morale suffered its biggest drop in more than five years, and surveys of recruitment firms and retailers also signalled a slowdown ahead. Some analysts, however, said the survey could have been worse. "GfK's special consumer confidence survey showed a sharp, but not catastrophic, fall in the headline reading," RBC analysts said in a note to clients.
"The main index fell from -1 to -9. While this is a large monthly fall, it only takes the series to its long-run average. In isolation, this indicator could have been worse." Some players in Asia said the yen had been helped by a dip in appetite for risk on news of the shooting of 11 police officers during rallies in Dallas to protest against the killing of two black men by police this week.
The yen was up 0.3 percent at 100.66 yen per dollar. The consensus forecast is for the US economy to have added 175,000 jobs in June, according to a Reuters poll, but investors remain wary given the negative surprise in the May payrolls report, which some expect to be upwardly revised. A report overnight showed US private payrolls rose more than expected in June and jobless claims were lower than forecast. "I think many investors want to continue to focus on the Brexit risks, so even if we get some good US employment data, it might not be so helpful to overcome weak sentiment," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
"My basic scenario is that dollar/yen will trade between 100 and 105 through the end of September," he said. Most major bank analysts have forecast more weakness for sterling with a cut in official interest rates now at least 65 percent priced in for next week's Bank of England meeting. Investors also wonder if the Bank of Japan will decide to take further stimulus action at the conclusion of its two-day policy meeting on July 29, underlining the return of global concerns over growth.
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