Investing.com - The US dollar rose Thursday, bouncing from recent lows, while sterling headed lower ahead of the latest Bank of England policy-setting meeting.
At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.840, just above the lowest level since the start of last week.
Dollar bounces from lows
The greenback has bounced slightly higher in early trade Thursday, but the dollar index is still considerably off the three-week high of 109.88 seen at the start of the week as US President Donald Trump looked poised to impose 25% import tariffs on Mexico and Canada.
The two countries won last-minute, one-month reprieves, and this has dented the dollar uptrend.
“Driving this correction have been several factors, the largest of which has probably been this week’s tariff news, where it looks like the Trump administration has been using tariffs for transactional not ideological purposes,” said analysts at ING, in a note.
There is more labor market news to digest later in the session, in the form of the weekly initial jobless claims, which follows the job openings and private payrolls data seen earlier in the week.
However, the main focus will be the all-important nonfarm payrolls report on Friday. The US economy is tipped to have added 154,000 roles in January, down from 256,000 in the prior month, while the unemployment rate is seen matching December’s pace of 4.1%.
“Determining whether DXY corrects another 1-2% will probably be tomorrow’s jobs data. We saw earlier this week from the US JOLTS job opening data that soft figures can hit the dollar,” ING said. “Yet we doubt the dollar correction will last too long. We look for more structural and broader tariffs to come back into play in the second quarter.”
Sterling slips ahead of BOE meeting
In Europe, GBP/USD traded 0.5% lower to 1.2447, after rising as high as $1.2550 in the previous session for the first time since Jan. 7.
The Bank of England is widely expected to cut interest rates later in the session next week, to 4.5%, from 4.75%, which would only be its third cut since just after the start of the COVID-19 pandemic in 2020.
The British economy has barely grown since mid-2024, hit by worries about finance minister Rachel Reeves’ tax increases for employers and the risk of a global trade war led by US President Donald Trump.
But inflation remains an issue, likely limiting what Governor Andrew Bailey can provide in terms of future guidance for 2025.
“We expect an 8-1 vote to cut rates and a downward revision to growth forecasts to be a mild sterling negative. Much more negative would be a 9-0 vote, should arch-hawk Catherine Mann vote for a rate cut,” ING added.
EUR/USD traded 0.4% lower at 1.0365, ahead of the release of the eurozone retail sales data for December.
This is expected to show that sales fell 0.1% on the month at the end of last year, as consumers in the region remained pressured.
“The question is whether tomorrow’s US jobs numbers need to drive the EUR/USD correction briefly back up to the 1.0530/70 area,” said ING. “We cannot rule that out, but doubt that any gains above 1.05 hold for long. We’re still happy to look for a move back to 1.02 later this quarter, with 1.00 the likely trajectory in the second quarter when broader US tariffs are brought in.”
Yen supported by hike expectations
In Asia, USD/JPY traded just lower at 152.56, after earlier falling as much as 0.5% to 151.81 yen - its lowest level in nearly two months.
The yen was buoyed by comments from BOJ board member Naoki Tamura, who warned that steady growth in wages and inflation could see the bank hike rates to 1% in the second half of 2025.
Tamura’s comments sparked an extended rally in the yen, after stronger-than-expected wage data for December supported the currency earlier this week.
USD/CNY traded 0.2% higher at 7.2886, with the onshore yuan remaining under pressure, having risen sharply on Wednesday as local markets reopened from the Lunar New Year holiday.
Sentiment towards China was battered by President Trump imposing 10% trade tariffs on the country. China retaliated with its own tariffs and export controls, potentially heralding the start of a renewed trade war between the world’s biggest economies.