Dollar slips after ECB hints at rates pause; US data weigh
The dollar slipped against the euro on Thursday after the European Central Bank hinted at a pause in its year-long policy easing cycle and U.S. data pointed to softening labor market conditions amid mounting economic headwinds from tariffs.
The ECB cut interest rates for the eighth time in a year on Thursday, acknowledging inflation was under control and turning more pessimistic about economic prospects amid risks of a trade war with the United States.
While not confirming a pause, the central bank said it was now well-positioned to cope with global economic uncertainty, as market bets grew on a summer break in its year-long easing cycle.
"With today's cut and the current level of interest rates... I think we are getting to the end of a monetary policy cycle that was responding to compounded shocks, including COVID, including the war in Ukraine, the illegitimate war in Ukraine, and the energy crisis," ECB President Christine Lagarde said.
The euro rose 0.5% to $1.1473, a fresh six-week high against the dollar, not far from the more than 3-year high of $1.1573 touched in April.
"The euro-dollar has taken off here in response to Lagarde saying the ECB is getting towards the end of its rate cutting cycle," said Shaun Osborne, chief currency strategist at Scotiabank.
The dollar's softer tone was an extension of its recent weakness, with the U.S. currency down nearly 10% against the euro for the year.
"This just broadly reflects the softening in the broader dollar sentiment here and may well continue into non-farm payrolls tomorrow," Osborne said.
"We are also seeing a little bit of volatility around news of President Trump talking to Xi, in a first sign of high-level communication between the White House and Beijing in quite some time," Osborne said.
Chinese President Xi Jinping on Thursday held talks with Donald Trump by phone, China's state-run news agency Xinhua reported, as bilateral relations have been strained by trade disputes.
The dollar also came under pressure after data showed the number of Americans filing new applications for unemployment benefits last week increased for a second straight week, pointing to softening labor market conditions amid mounting economic headwinds from tariffs.
The claims data have no bearing on the Labor Department's closely watched employment report for May, scheduled to be released on Friday, as it falls outside the survey period.
Nonfarm payrolls likely increased by 130,000 jobs last month after advancing by 177,000 in April, a Reuters survey of economists showed. The unemployment rate is forecast being unchanged at 4.2%.
"Evidence of a cooling in labour markets is beginning to build, lowering expectations ahead of tomorrow's non-farm payrolls report and putting downward pressure on yields," Karl Schamotta, chief market strategist at Corpay, said.
Markets have been rattled since Trump announced a slate of tariffs on countries around the world on April 2, only to pause some and declare new ones, leading investors to look for alternatives to U.S. assets.
Investors remain worried about U.S. trade negotiations and the lack of progress in hashing out deals ahead of an early July deadline.
Elsewhere, the Hong Kong dollar was at 7.846 per U.S. dollar, about the closest it has been to 7.85 - the weak end of its trading band against the U.S. dollar - since August 2023, according to LSEG data. The dollar was 0.3% higher against the yen at 143.25 yen.
Sterling was 0.3% higher against the dollar on Thursday. The United Kingdom is the only country to have struck a trade deal with the Trump administration and was spared from higher U.S. steel and aluminium tariffs, though analysts question how beneficial those factors are.
Bitcoin, the world's largest cryptocurrency by market capitalisation, was 0.5% lower on the day at $104,021.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Ankur Banerjee in Singapore and Lucy Raitano in London; Editing by Jamie Freed, Amanda Cooper, Alex Richardson and Toby Chopra)
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