The U.S. dollar was poised for its largest weekly decline in almost three months on Friday, following a lacklustre June jobs report that tempered market expectations for Federal Reserve rate increases, offering some respite for the struggling yen. Softness in the greenback persisted during early Asian trade, as the euro remained close to its two-week peak at $1.1442. Sterling was also firm at $1.3361 and is on track for a 1.2% weekly gain, marking its best performance in nearly three months. The risk-sensitive Australian dollar fetched $0.6935, poised to break a four-week losing streak. New Zealand’s kiwi was valued at $0.5702, reflecting a weekly increase of 1.2%.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was 0.2% lower at 100.77 after a 0.5% decline on Thursday. It is presently down 0.58% for the week, marking the most significant weekly decline since early April. U.S. job growth experienced a notable deceleration in June, as nonfarm payrolls rose by 57,000, significantly underperforming the anticipated increase of 110,000. The labour force participation rate has declined to 61.5%, marking the lowest level in over five years. That has led traders to reduce their expectations for a near-term interest rate increase from the Federal Reserve, with markets now pricing in a 52% chance for a hike at the September meeting, down from 64% in the previous session.

U.S. Treasury yields experienced a retreat from previous peaks, as the yields on interest rate-sensitive two-year notes ended a three-day streak of increases, declining by 4 basis points. “At the margin, it is dovish, helping to ease concerns about labour market overheating and the need for more aggressive policy tightening,” stated Sim Moh Siong. However, the broader outlook remains favourable for the dollar, particularly against low-yielding currencies, as long as expectations for Fed tightening remain intact, he added. The Japanese yen last traded at 161.01 per dollar after rallying nearly 1% in the previous session, lifting the currency from multi-decade lows as the greenback wobbled. Investors maintained a vigilant stance regarding potential intervention as Japanese officials shifted away from their usual practice of signalling risks.

Instead, they indicated a more focused strategy aimed at pressuring speculators and increasing the costs associated with shorting the weakened yen. The Bank of Japan should continue to raise interest rates at a moderate pace to rectify excessive yen declines, Toshihiro Nagahama, a government panel member known as an economic aide to dovish Prime Minister Sanae Takaichi, stated on Thursday. “The bigger ⁠question ​is what comes next,” remarked Tony Sycamore, an analyst, indicating the 162.83 level as a short-term peak for dollar-yen. “Whether it becomes a more meaningful medium-term high will ultimately depend on incoming U.S. data and, ​to some degree, developments in the Japanese government bond market.”