By Gertrude Chavez-Dreyfuss and Harry Robertson
NEW YORK/LONDON (Reuters) -The U.S. dollar recovered on Tuesday after falling overnight to its lowest levels against the euro, sterling and Swiss franc since mid-March, as investors in other currencies consolidated ahead of a major non-farm payrolls report later this week.
However, the dollar had to pare gains against a basket of currencies led by the euro and sustain losses against the yen after US job vacancies fell more than expected in April to the lowest level in more than three years, data showed. Job Openings and Labor Turnover Survey. , or JOLTS report.
The number of vacancies, a measure of labor demand, fell by 296,000 to 8.059 million on the last day of April, the lowest level since February 2021.
Market participants focused on the JOLTS data ahead of Friday’s U.S. jobs report, which is expected to show 185,000 new jobs created in May, up from 175,000 in April.
The JOLTS report followed Monday’s data that showed a second straight month of slowdown in industrial activity and an unexpected drop in construction spending.
“Although the US dollar initially fell based on the JOLTS data, it already appears to be recovering and is still on track for a daily gain after being routed yesterday,” said Helen Given, FX trader at Monex USA in Washington.
“The Federal Reserve has long stated that it is looking for some softening in the labor market, and today’s JOLTS reading is a good indication that the labor market is finally moving in the direction they want, so while there are fewer job openings, that’s not the case. “Overall, it’s necessarily good, but the Federal Reserve might like to see it,” she added.
By contrast, US factory orders rose for the third month in a row in April, boosted by demand for transportation equipment. Data showed factory orders rose 0.7%, matching March’s revised pace. Economists polled by Reuters had forecast an increase of 0.6% compared to March.
In late morning trading, the price rose 0.2% to 104.25, after falling overnight to 103.99 to its lowest point since mid-April.
The euro, the largest component of the dollar index, fell 0.3% to $1.0868.
The YEN RISES TO THREE WEEK HIGH
The yen, on the other hand, rose to a three-week high against the dollar after Bank of Japan officials warned they would keep a close eye on the currency, and a Bloomberg report said talks could soon begin reducing bond purchases.
BOJ Deputy Governor Ryozo Himino said on Tuesday that the central bank must be “very vigilant” of the impact the yen’s swings could have on inflation when guiding monetary policy.
Bloomberg said the BOJ would discuss the slowdown in its bond purchases at its two-day policy meeting next week. That could push yields higher in the coming weeks and could come before a July rate hike, something analysts at TD Securities are now anticipating on Tuesday.
Alex Loo, FX and macro strategist at TD Securities in Singapore, said investors are also likely to unwind carry trades given Monday’s losses in the Indian rupee and Mexican peso following recent election results.
In carry trades, investors borrow into low-yielding currencies such as the yen or Swiss franc to buy higher-yielding currencies, such as emerging market currencies.
“As such, the Japanese yen and Swiss franc are posting big gains during today’s trading session,” Loo said.
The Mexican peso was still lower against the dollar that day, but not as much as on Tuesday, when losses were more than 4%. The dollar last rose 0.8% to 17.805.
The Indian rupee remained lower against the dollar, which last traded down 0.5% at 83,539 rupees, amid a lack of clarity over the performance of the alliance led by Indian Prime Minister Narendra Modi after it lost its absolute majority had lost.
In Britain, the pound also hit its highest since mid-March at $1.2818 before falling 0.3% lower to $1.2777.
Against the Swiss franc, the dollar also fell to its lowest level since March, at 0.8971 francs. It last fell 0.5% to 0.8989 francs. Data showed that Swiss inflation remained stable at 1.4% year-on-year in May.
The drop in oil prices also had an impact on currency markets, as investors worried about a surge in supply later in the year, amid signs of weakening US demand.
The Australian dollar fell 0.7% against the dollar to US$0.6642, while the Norwegian krone fell 1.4% against the dollar to 10.5778, in a sign that commodity currencies are coming under pressure.
