Dollar poised for third weekly gain as buoyant data seen keeping Fed cuts at bay

Impact of Economic Data on Currency Markets

By Rocky Swift

U.S. Jobless Claims and Economic Indicators

TOKYO, Jan 16 (Reuters) - The dollar was poised for a third weekly gain on Friday after positive U.S. economic data lowered expectations for rate cuts by the Federal Reserve anytime soon.

Federal Reserve's Stance on Inflation

The greenback rose overnight on a surprise decline in weekly jobless figures and was steady in Asian morning trade. The yen remained at levels that risked intervention in currency markets by Japan to defend its currency.

Global Currency Reactions

Fed funds futures have pushed back expectations for the next rate cut to June on the back of improving employment data and as central bank policymakers expressed concern about inflation.

"The U.S. dollar is looking firmer to start the year," Kyle Rodda, an analyst at Capital.com, wrote in a note. "Weekly U.S. jobless claims data, along with some manufacturing surveys, were better than expected, lowering the implied probabilities of imminent Fed rate cuts."

The dollar index, which measures the greenback against a basket of currencies, was little changed at 99.36 and poised for a 0.2% advance this week. The euro was steady at $1.1607.

The yen strengthened 0.05% against the greenback to 158.58 per dollar, but is set to fall about 0.5% this week.

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 198,000 for the week ended January 10, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.   

Chicago Fed President Austan Goolsbee said Thursday that amid ample evidence of stability in the job market, the central bank should be focused on getting inflation down.

Kansas City Fed President Jeff Schmid on Thursday called inflation "too hot" while San Francisco Fed President Mary Daly said that incoming U.S. economic data looks promising.

Separately, the European Central Bank will not debate any rate change in the near term if the economy stays on course, but new shocks, like a potential deviation by the Fed from its mandate, could upset the outlook, ECB chief economist Philip Lane said.

The ECB has kept rates on hold since ending a rapid rate cut cycle in June and signalled last month that it was in no hurry to change policy again.

The Japanese currency has fallen on expectations that Prime Minister Sanae Takaichi may have more leeway to introduce more fiscally expansionist policies pending a snap election expected early next month. Warnings from Japanese policymakers that they stand ready to act against one-way movements in foreign exchange markets have given the yen brief boosts.

The yen is getting little help from expectations of rate hikes by the Bank of Japan. The central bank will likely wait until July before raising its key interest rate again, economists said in a Reuters poll released on Thursday.

The Australian dollar was little changed against the greenback, trading at $0.6699. New Zealand's kiwi strengthened 0.05% to $0.5745.

In cryptocurrencies, bitcoin gained 0.2% to $95,760.92 and ether rose 0.8% to $3,323.82.

(Reporting by Rocky Swift; Editing by Edwina Gibbs)