By Lananh Nguyen
NEW YORK (Reuters) – The dollar weakened against most major currencies on Thursday as support from the Federal Reserve’s hawkish messaging subsided and investors turned their attention to a hotly anticipated U.S. jobs report.
The dollar extended losses following U.S. data that showed the number of Americans filing new claims for unemployment benefits increased last week.
Earlier on Thursday, the Bank of England raised interest rates by the most since 1995. The British pound initially weakened as the central bank warned that a long recession was on its way with inflation seeing topping 13% but it later gained some ground as the dollar fell.
The dollar index fell 0.704% to 105.720, while sterling was last trading at $1.2166, up 0.19% on the day. The euro was up 0.79% at $1.0244, and the Japanese yen strengthened 0.76% versus the greenback at 132.83 per dollar.
“There is a mentality now across markets that we know what’s coming in terms of monetary tightening,” said Juan Perez, director of trading at Monex USA in Washington. Investors are taking a view that “whatever downturn we’re facing in the next few months will be short-lived.”
Investors will get a key snapshot of how the U.S. economy is faring on Friday, when the Labor Department reports employment data for July. Signs that the U.S. job market continues to be robust will likely bolster expectations for more monetary policy tightening from the Fed.
Fed officials have continued to push back against the perception that U.S. interest rates were close to peaking. On Thursday, Cleveland Fed President Loretta Mester said the Fed should raise interest rates to above 4% to help bring inflation down and aim to keep tightening through the first half of next year.
Her comments followed those by San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari who voiced their determination overnight to rein in high inflation.
The dollar’s strength has yet to peak, a Reuters poll released on Thursday showed. Of those polled, 70% thought the dollar had some room to rise further in this cycle, even after its index hit its highest level in two decades in July.
Money markets price in a 50 basis-point hike at the Fed’s September meeting, and a roughly 44% chance of another massive 75 bps increase. The Fed hiked rates by 75 basis points at its meeting in June and July. [FEDWATCH]