U.S dollar trading near a week high

The dollar was trading near a one-week high against its main peers on Friday, following the largest decline in U.S unemployment claims in nearly a year, tamed concerns about an impending economic downturn.

The dollar index showed some strength fueled by a spike in Treasury yields as Thursday’s stronger-than-expected employment data prompted a retreat in bets on Federal Reserve interest rate cuts this year,

As Asian equities built on an overnight rally on Wall Street, the yen and fellow safe-haven currency, the Swiss franc, hovered around one-week lows. Meanwhile, riskier currencies, like the Australian dollar and sterling, stayed elevated.

Early this week the unexpectedly soft U.S. data was a major factor in the market’s turbulent week. U.S payrolls data from a week ago knocked down world stocks, but on Monday, demand for safe havens like the Swiss franc and the yen drove those currencies to their highest levels since the year’s beginning.

The Federal Reserve may lower interest rates in September, as more people anticipate, which presents challenges for the US dollar. Traders assess conflicting signals from the US economy to predict if it will enter a recession or make a soft landing. According to the CME FedWatch tool, markets expect the Fed to cut interest rates by 25 basis points in September.

President of the Kansas City Fed Jeffrey Schmid said if inflation stays low, “appropriate” monetary policy reduction may be necessary. Schmid stated that although the Fed is getting close to reaching its 2 percent inflation target, it has not yet fully attained it and that the current Fed policy is “not that restrictive.”.

Data-wise, US initial claims for unemployment benefits decreased to 233,000 for the week ending August 2, which was lower than the market’s prediction of 240,000. This drop comes after the previous week’s upwardly revised total of 250,000—the highest in a year.

Growing safe-haven flows amid elevated geopolitical tensions in the Middle East may limit the dollar’s downside. According to Palestinian medics, Israeli forces increased the intensity of their airstrikes on the Gaza Strip on Thursday, killing at least 40 people. The conflict between Israel and militants led by Hamas has become more intense as a result of this escalation, which comes as Israel braces itself for the potential of a wider regional conflict after senior members of Hezbollah and Hamas were killed.