Dollar Struggles as Fed Rate Cuts Bets Weigh

The dollar was trading near one-week lows against the yen on Thursday as declines in U.S. Treasury yields boosted expectations the U.S. Federal Reserve will cut interest rates later this month.

Government bonds are in the middle of a global rally, which has pushed  U.S. Treasury yields to the lowest in over two-and-a-half years and sent European yields to record lows on increasing bets major central banks will cut interest rates to bolster the global economy.

Waning expectations for a quick resolution to the U.S.-China trade war also hurt sentiment on the dollar.

Investors were shifting their attention to the U.S. non-farm payrolls data due on Friday, which economists expect to have risen by 160,000 in June, compared with 75,000 in May.

Positive payroll data is unlikely to buoy the dollar as expectations for U.S. rate cuts are strong, given low inflation and the fallout from the trade war.

“When U.S. yields are this low, you can’t expect people to pile in and buy the dollar,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“Sentiment is tilted toward testing the dollar’s downside. There are expectations for lower rates in Europe and Britain, so it may be easier for the dollar to move versus the yen.”

The dollar was little changed at 107.79 yen on Thursday, after touching a one-week low of 107.54 yen on Wednesday.

The greenback has fallen 3.5% versus the yen in the past three months amid growing signs the Fed will cut rates at its July 30-31 meeting.

The U.S. dollar index against a basket of six major currencies was little changed at 96.35.

Global forex trading likely will be subdued on Thursday as U.S. financial markets are closed for a public holiday.

U.S. President Donald Trump’s administration said on Wednesday it is scheduling a call with Chinese negotiators next week that would mark the resumption of talks between the two countries.

Expectations for a smooth resolution to a dispute have waned after Trump said any agreement would have to be tilted somewhat in favor of the United States.

The euro was trading near a two-week low at 1.1282.

The common currency has weakened since IMF Managing Director Christine Lagarde, perceived as a policy dove, was nominated as the next European Central Bank president.

Sterling traded hands at 1.2580, mired near a two-week low of $1.2557 due to speculation the Bank of England will abandon its preference to raise interest rates and swing to the dovish camp as the trade war and uncertainty about Brexit.