Dollar hits 4-week peak, then eases, sterling lower after BOE hike

The dollar slid from a four-week peak on Thursday after U.S. labor market data failed to impress a day before a key jobs report, and as Treasury yields rose but eased at the short end.

Nonfarm-productivity rose to an annualized 3.7 per cent to help curb growth in labor costs and aid an improving U.S. inflation outlook. But labor productivity has grown at a 1.4 per cent rate since the fourth quarter of 2019, well below the long-term average since 1947 of 2.1 per cent.

Other data showed the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs fell to an 11-month low in July amid a tight labor market.

"The activity data in the U.S. has shown a lot of resilience compared to the rest of the world," said Vassili Serebriakov, FX and macro strategist at UBS in New York, adding he did not find the day's data "particularly impactful."

The dollar also has been bolstered by the carry trade, when investors borrow in currencies with low interest rates and invest in the dollar or dollar-based assets.

As the Federal Reserve prepares for its annual symposium from Aug. 24-26 in Jackson Hole, Wyoming, signs that the U.S. central bank is close to ending hiking interest rates may appear, nudged by the Fed's counterparts in Europe.

"It's the European central banks that have offered more clarity about the peak in interest rates," said Thierry Wizman, global FX and currencies strategist at Macquarie in New York.

"You would think that the disinflation story being more prominent in the U.S., that it would be the Fed signaling more clarity on the top in interest rates," he said.

The European Central Bank last week signaled it may take a break at its next meeting in September as inflation continues to fall and growth weakens.

The dollar index , which measures the currency against six major peers, fell 0.039 per cent.

The closely watched U.S. nonfarm payrolls report is due on Friday.

Sterling remained lower after the Bank of England downshifted to a smaller 25 basis point hike. The pound last traded at $1.27, down 0.07 per cent on the day.

"The relative disparity in the trajectory of future monetary policy, against a backdrop of better-than-expected economic growth data, has catalyzed a rally in the UK pound this year," said John Leiper, chief investment officer at Titan Asset Management.

"But momentum has dwindled recently, following the latest inflation number ... and signs today that the bank is becoming a little more relaxed around the direction of travel."

The safe-haven Japanese yen strengthened 0.40 per cent at 142.72 per dollar, benefiting from risk aversion as global equities extended their recent decline. Earlier, the currency fell to a four-week low of 143.89 per dollar.

The Japanese currency had come under pressure this week even as the Bank of Japan on Friday loosened its grip on interest rates. Policymakers have also been quick to push back against speculation that the move was a prelude to an imminent exit of the central bank's ultra-easy policy.

The euro rose 0.04 per cent to $1.094, while the Aussie hit a two-month low of $0.6514.

Elsewhere in Asia, China's offshore yuan strengthened after data on Thursday showed the country's services activity expanded slightly faster in July, though investors continue to be on the lookout for further support measures from Beijing following last week's Politburo meeting.