The euro continued to rise against the dollar as fresh government figures showed Thursday that U.S. productivity in the first quarter declined by a revised, much steeper annual pace, while jobless claims came in stronger-than-expected.
Meanwhile, the sustained rise in German bond yields that followed revisions to the eurozone’s inflation forecasts, continued to push the euro higher against major currencies.
The dollar remained under pressure, with many investors reluctant to make major moves ahead of U.S. jobs data scheduled for release Friday.
The WSJ Dollar Index BUXX, +0.19% a measure of the dollar against a basket of major currencies, was up 0.04% at 86.52, while the ICE dollar index DXY, -0.12% traded 0.527% lower at 94.96.
The euro EURJPY, +0.01% jumped to its highest level since January against the yen, trading at ¥140.33, compared with ¥140.02 in late New York trading. Against the dollar EURUSD, -0.1508% it climbed to $1.1297 from $1.1275, hitting the highest level since mid-May.
The push higher for the shared currency came after an upward revision in inflation forecasts on Wednesday, as well as remarks by European Central Bank President Mario Draghi that markets should get used to volatility. That ignited a selloff in German bonds, which pushed the euro higher.
“The common narrative is that investors are attracted to the bund’s high yield and buying euros to cover the transaction,” said Marc Chandler, global head of currency strategy at BBH, in a note.
“Under scrutiny, this seems backward. Investors are selling bunds, and that is why yields are rising. The euro first is lifted by the unwinding of short currency hedges, but with technical levels breaking, momentum traders and leveraged accounts have jumped aboard,” he added.
Nonfarm nervousness: Ahead of the closely monitored U.S. jobs report on Friday, many investors opted to stay on the sidelines rather than tilt their dollar positions in any particular direction. A strong nonfarm-payrolls reading will provide the Federal Reserve with more ammunition to justify raising interest rates long before other central banks in Japan and the eurozone.
But the greenback remains well-supported, indicating that many players, including Japanese corporate investors, who were unable to buy the dollar in the latest rally, are still keen to buy the U.S. currency on dips.
“For those who really want or need to buy, the dollar is maintaining its strength. So there has been buying kicking in from those who became impatient,” said Marito Ueda, director of FX Prime by GMO.
Ueda also said there has been a practice among overseas money managers under which they buy Japanese stocks and sell the yen for the purpose of hedging risk. The trade practice is aimed at offsetting the risk of reduction in their dollar-denominated value of Japanese stocks.
“There has been yen selling amid the dollar’s strength,” said Ueda, adding that the dollar will continue to show itself less vulnerable to weakening against the yen.
The dollar USDJPY, +0.14% was at ¥124.22, compared with ¥124.24, and well off its Wednesday mark of ¥125.07, its highest since December 2002.
The pound GBPUSD, +0.1695% rose to $1.5393 from $1.5339 late Wednesday ahead of the Bank of England’s rate decision.
