By Chuck Mikolajczak
NEW YORK (Reuters) -The dollar weakened against most currencies on Monday after economic data showed more signs of weakening in the U.S. labor market, while the pound recovered from earlier lows after the Bank of England opened the door to a rate cut.
Initial weekly jobless claims rose by 22,000 to a seasonally adjusted 231,000, the highest level since late August last year and above the 215,000 expected by economists in a Reuters poll.
The data followed last week’s weaker-than-expected U.S. payrolls report and other data that showed job openings fell to the lowest level in three years in March.
Market participants have seen a weakening labor market as a sign that consumers will slow their spending and in turn help cool inflation. Next week’s data will include measures of consumer prices (CPI), producer prices (PPI) and retail sales.
“We had a knee-jerk reaction this morning on interest rates and the dollar’s decline after jobless claims came in above expectations,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
Schamotta said there were some seasonal distortions in the claims report that may have led to the higher reading, but he added that recent economic data “indicates somewhat that we are seeing a slowdown in the world’s largest economy, and if we indeed see a A sequential decline in US consumer/producer price indexes next week, as well as retail sales, could puncture the US exceptionalism trade that has dominated markets for some time.”
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The , which measures the dollar against a basket of currencies, fell 0.21% to 105.29, while the euro rose 0.27% to $1.0774.
Sterling rose 0.1% to $1.2509 in the wake of the US data. The pound had fallen to a low of $1.2446, its weakest level since April 24, after the Bank of England (BoE) cleared the way for a rate cut.
The BoE’s Monetary Policy Committee had voted 7-2 to keep the central bank’s key policy rate at a 16-year high of 5.25%, with Deputy Governor Dave Ramsden joining Swati Dhingra in favoring a reduction to 5%. BoE Governor Andrew Bailey said it was possible the central bank would have to cut rates by more than investors expect.
Against the Japanese yen, the dollar edged 0.02% lower to 155.45, while hawkish views from Bank of Japan members helped slow the yen’s fall. The dollar is slowly recovering against the Japanese currency after falling 3.4% last week, the biggest weekly percentage decline since early December 2022.
The yen had earlier risen to 155.15 per dollar after the BOJ’s summary of opinions showed that board members were overwhelmingly hawkish at their policy meeting in April, with many citing the need for steady interest rate hikes.
BOJ Governor Kazuo Ueda said the central bank will closely examine the yen’s recent declines to guide monetary policy.
Market participants suspect Tokyo spent about $60 billion last week to halt the yen’s slide after it hit its weakest level in 34 years against the dollar around 160 yen.
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In a note on Thursday, Deutsche Bank’s head of currency research, George Saravelos, reiterated that “as long as the BOJ does not see an urgency to quickly normalize policy, the fundamental backdrop for the JPY (yen) will not change.”
