Dollar steady ahead of US payrolls, yen intervention jitters persist

By Satoshi Sugiyama

TOKYO, July 2 (Reuters) - The dollar held tight ranges on Thursday as markets awaited key U.S. jobs data for clues on the rates outlook, while the yen's slide to 40-year lows against the greenback and thin trade ahead of a U.S. holiday kept traders on high alert for intervention.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, eased just 0.1% to 101.32.

Thursday's data is expected to show U.S. employers added 110,000 jobs in June, with the unemployment rate holding steady at 4.3%, according to the median estimate of economists polled by Reuters.

Federal Reserve Chair Kevin Warsh said on Wednesday inflation expectations and price risks have eased in recent weeks, while the ADP National Employment Report showed private employment rose less than expected.

"If the payrolls data exceed market expectations, the dollar could accelerate higher on a rebound," said Mitsubishi UFJ Bank senior analyst Akihiko Yokoo in a note.

The dollar has been underpinned by rising expectations of Fed rate hikes this year. A resilient labour market has also bolstered the U.S. growth outlook, after jobs gains exceeded expectations for the past three months. That added to other sources of dollar support, including the rapid adoption of AI, which has helped draw capital into U.S. assets.

The euro traded at $1.135 against the U.S. dollar while sterling gained 0.13% to $1.3288.

ON GUARD FOR YEN INTERVENTION

Meanwhile, the Japanese yen gained 0.23% against the greenback to 162.18 per dollar, having hit a fresh 40-year low of 162.84 on Wednesday.

The yen has been one of the biggest casualties of the dollar's strength, with the greenback up 3.54% against the Japanese currency year to date.

Although the Bank of Japan raised interest rates to a 31-year high last month, analysts said selling pressure on the yen had picked up again this week on concerns the BOJ may be falling behind the curve, partly after the bank's Tankan survey suggested companies' inflation expectations could rise further.

"If that feeds through into price hikes and further wage gains, creating a more self-reinforcing inflation cycle, markets could again focus on the BOJ's behind-the-curve stance," said Sho Suzuki, market analyst at Matsui Securities in Tokyo.

The government's economic policy blueprint released on Tuesday, which called on the BOJ to align monetary policy with government efforts to boost growth, has drawn attention to the central bank potentially being behind the curve, he added.

Sources told Reuters Japanese officials are abandoning their habit of telegraphing intervention risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the battered yen.

Officials are also avoiding any suggestion of a specific "line in the sand" exchange-rate level that would trigger action, reflecting a more aggressive approach by the Japanese finance ministry to use silence as a policy tool to keep traders guessing.

Traders see Friday's U.S. public holiday as a potential window for Tokyo to step in, with thinner liquidity likely to amplify the effect of any action.

Tony Sycamore, market analyst at IG Australia, said the U.S. jobs data due later in the day could serve as a trigger for intervention, depending on the result.   

"A robust jobs print would provide fresh fuel for momentum and macro accounts to add to longs, pushing the pair toward the top of the trend channel 165–166 area," he said in a note. "Conversely, a softer-than-expected report — for example, payrolls of around 65,000 with the unemployment rate ticking up to 4.4% or higher — would take some of the heat out of the recent rally."

In that scenario, he added, Japan's finance ministry could intervene in thin trade ahead of the July 4 weekend to get "more bang for their buck."

The Australian dollar traded at $0.6894 against the greenback, while New Zealand's kiwi edged 0.1% higher to $0.5677.

In cryptocurrencies, bitcoin gained 1.17% to $60,769.72, and ether rose almost 1% to $1,632.23.

(Reporting by Satoshi Sugiyama in TokyoEditing by Shri Navaratnam and Sam Holmes)