The dollar held steady on Thursday as markets awaited key U.S. non-farm payrolls data, while the yen's slide to 40-year lows against the greenback and thin trading 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 0.02% to 101.38.
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 Chairman Kevin Warsh said on Wednesday inflation expectations and price risks have eased in recent weeks, while the ADP National Employment Report showed that private employment rose but less than expected.
That being said, "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 outlook for U.S. growth, after job gains exceeded expectations for the past three months. That has 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 $1.138 against the U.S. dollar while sterling edged 0.06% higher to $1.3279.
ON GUARD FOR YEN INTERVENTION
The Japanese yen has been one of the biggest casualties of the dollar's strength, putting Japan's Ministry of Finance in a difficult position over whether to intervene to support the currency.
Overnight, the yen sank to 162.84 yen against the dollar, hitting a 40-year low and well above levels that prompted Japanese authorities to intervene a few weeks ago. In early trading, it was little changed at 162.50 per dollar.
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 +65k 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 Fourth of July weekend to get "more bang for their buck."
The Australian dollar lost 0.09% versus the greenback to $0.6885, while New Zealand's kiwi traded at $0.5672.
In cryptocurrencies, bitcoin fell 0.2% to $59,934.94, and ether declined 0.7% to $1,605.88.
