The U.S. dollar strengthened against most G-10 currencies, propelled by declines in precious metals, despite Thursday's employment data indicating continued fragility in the U.S. labor market. The Bank of England maintained its current policy stance but adopted a dovish tone, leading to a further decline in the pound. The yen remained largely unchanged.
The Bloomberg Dollar Spot Index rose 0.2% following the release of soft U.S. employment figures. Initial jobless claims came in at 231,000, compared to a forecast of 212,000. Additionally, U.S. companies announced 108,435 job cuts in January, the highest number for the month since 2009.
"Alongside the weak Challenger data, the jump in initial jobless claims has redirected market focus back to the labor market," said Subadra Rajappa, Head of U.S. Rates Strategy at Société Générale.
Short-term U.S. Treasury notes advanced, resulting in a bull steepening of the yield curve. The yield on the 2-year U.S. Treasury note fell 7 basis points to 3.48%.
As investors assessed signs of a potential bubble in the gold and silver markets, the U.S. dollar emerged as the primary beneficiary of the drop in precious metal prices.
"Just last week, the market was heavily short the U.S. dollar—so what we're likely seeing now is a degree of short-term profit-taking," commented Bipan Rai of BMO Global Asset Management.
The pound sterling fell 0.8% against the dollar to 1.3544, its lowest level since January 23. The Bank of England's decision to hold rates steady, coupled with its dovish stance, prompted traders to increase bets on future interest rate cuts in the UK.
The yield spread between 2-year and 10-year UK government bonds widened to its highest level since 2018. Meanwhile, political pressure is mounting on UK Prime Minister Keir Starmer due to his decision to appoint Peter Mandelson as ambassador to the United States, despite being aware of Mandelson's past association with the disgraced financier Jeffrey Epstein.
The euro declined 0.2% against the dollar to 1.1783, as the European Central Bank kept interest rates unchanged for a fifth consecutive meeting.
"We agree with the relatively hawkish assessment of economic resilience, which is supported by low unemployment, strong private sector balance sheets, fiscal stimulus, and prior monetary easing," said Erica Camilleri, Senior Global Macro Analyst at Manulife Investment Management. "With policy in a comfortable neutral range, the bar for further easing remains high. Even incorporating our optimistic target of 1.25 for EUR/USD, we believe the yield curve does not reflect any justification for rate cuts."
The Australian dollar dropped 0.7% against the U.S. dollar to 0.6947, after silver prices fell 16%, erasing gains from the previous two days.
The U.S. dollar gained 0.1% against the Japanese yen, reaching 157.03. Japanese government bonds advanced, supported by a solid 30-year bond auction that eased market sentiment ahead of weekend lower house elections.
The U.S. dollar rose 1.3% against the Norwegian krone, trading at 9.7915. Citigroup recommended a long position on the Swiss franc against the Norwegian krone, suggesting the krone may be at risk of a pullback.