Dollar gains as drop in US jobless claims boosts rate-hike bets

By Karen Brettell

NEW YORK (Reuters) – The dollar gained against a basket of currencies on Thursday after data showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, boosting expectations the Federal Reserve may continue hiking interest rates if the economy remains strong.

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 228,000 for the week ended July 15, the Labor Department said. Economists polled by Reuters had forecast 242,000 claims for the latest week.

The odds that the U.S. central bank would continue to raise rates after a widely expected 25-basis-point increase next week edged higher after the data. Fed funds futures traders are pricing in an additional 34 basis points of tightening, up from expectations of another 32 basis points of increases on Wednesday.

“The market has been searching for signs of layoffs in the U.S. and they simply aren’t materializing,” said Adam Button, chief currency analyst at ForexLive in Toronto. “Today’s initial jobless claims number underscores again that the U.S. has an extremely strong labor market and that the Fed still has more work to do.”

Other data on Thursday showed that U.S. existing home sales dropped to a five month-low in June, depressed by a chronic shortage of houses on the market that slowed the pace of decline in annual house prices.

Investors will focus on comments by Fed Chair Jerome Powell after the U.S. central bank’s interest rate decision on Wednesday for any new clues on whether it is likely to raise rates again in September.

The dollar had tumbled after cooling consumer and producer inflation releases last week indicated that price pressures may be closer to returning to the Fed’s 2% inflation target.

The rose 0.62% against a basket of currencies to 100.85. The euro fell 0.67% to $1.1127.

The European Central Bank will raise interest rates by 25 basis points on July 27, according to all economists in a Reuters poll, a slight majority of whom were now also expecting another hike in September.

Sterling continued to fall after data on Wednesday showed that Britain’s rate of inflation was its slowest in more than a year at 7.9%, which is likely to ease some of the pressure on the Bank of England to keep raising interest rates sharply. A key British mortgage rate also fell on Thursday for the first time in nearly two months.

The British currency is down 0.61% at $1.2859 and has fallen from $1.3144 last Thursday, which was its highest level since April 2022.

The greenback rose 0.35% against the Japanese yen to 140.20.

Japan’s government on Thursday forecast inflation sharply exceeding the central bank’s 2% target this year, acknowledging broadening price rises that may keep alive market expectations of an end to ultra-low interest rates.

The greenback lost 0.77% against the offshore to 7.1764.

China left lending benchmarks unchanged on Thursday, and its central bank added that it had raised a cross-border financing ratio that dictates the maximum any company can borrow as a proportion of its net assets, allowing domestic firms to tap overseas markets for funds.

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Currency bid prices at 3:00PM (1900 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 100.8500 100.2500 +0.62% -2.551% +100.9700 +100.0100

Euro/Dollar $1.1127 $1.1202 -0.67% +3.84% +$1.1229 +$1.1119

Dollar/Yen 140.1950 139.7150 +0.35% +6.94% +140.4900 +139.1100

Euro/Yen 156.00 156.44 -0.28% +11.19% +156.6100 +155.9300

Dollar/Swiss 0.8671 0.8586 +1.00% -6.21% +0.8683 +0.8562

Sterling/Dollar $1.2859 $1.2938 -0.61% +6.33% +$1.2964 +$1.2840

Dollar/Canadian 1.3176 1.3164 +0.09% -2.75% +1.3194 +1.3120