(Bloomberg) -- The dollar fell from the highest in more than a week versus its major peers before a U.S. jobs report Friday that may provide clues on whether the Federal Reserve will raise interest rates this year.
The yen strengthened for a third day as investors continued to favor the safest assets following another round of U.K. real-estate fund closures. Even so, the pound rallied from its 31-year low. U.S. payrolls rose 180,000 in June, economists surveyed by Bloomberg predict, after the smallest increase in hiring in May since 2010.
Even a jump in employment may not result in a change in the U.S. rates outlook because the Fed must weigh the prospects for the local economy against external risks -- such as Britain's June 23 decision to quit the European Union.
“Market participants will require stronger evidence that the U.S. economy is proving more resilient given heightened uncertainty over the outlook following the Brexit vote,” said Lee Hardman, a London-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “Even if the non-farm payroll report is stronger than expected, the dollar upside could still be only modest for now. The market doesn't expect the Fed to raise rates this year.”
Bloomberg's Dollar Spot Index, which tracks the currency against 10 major counterparts, fell 0.1 percent at 6:47 a.m. New York time.
‘Solid Attraction'
The yen gained for a third day, climbing 0.2 percent to 101.10 per dollar and rising against seven of its 10 developed-market peers as concern escalates about the fallout from Brexit. The pound added 0.6 percent to $1.3013, while the euro dropped 0.2 percent to $1.1082.
“The yen remains a solid attraction for the haven theme,” said Neil Jones, head of hedge-fund sales at Mizuho Bank in London. “I'm expecting this theme to continue in play for some time.”
Sterling rallied after touching a low of $1.2798 on Wednesday. A gauge of the U.K. currency shows it's down 32 percent versus major peers over the past decade -- with more than a third of that taking place since the referendum.
Lenders including Goldman Sachs Group Inc. and Deutsche Bank AG say the pound's just getting started with its decline, predicting it could sink another 7 percent to 11 percent this year versus the dollar following the Brexit vote.
“The pound's move yesterday was not going to be sustained ahead of U.S. non-farm payrolls,” said Chester Liaw, a senior economist at Forecast Pte Ltd in Singapore. “Players are unwilling to take extended risks. That led to some position-squaring.”
--With assistance from Narayanan Somasundaram Kevin Buckland and Netty Ismail To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net, Anchalee Worrachate in London at aworrachate@bloomberg.net. To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Paul Armstrong, Mark McCord
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