Dollar claws back losses as oil surges, yen slides

The U.S. dollar hovered near a seven-week low on Thursday, with currency markets in a holding pattern as traders braced for Friday's nonfarm payrolls report and monitored fragile U.S.-Iran negotiations over the Strait of Hormuz.

The U.S. Dollar Index held steady around 99.7 after sliding to its weakest level since mid-June in the previous session, according to Reuters. The greenback then clawed back some losses later in the day as rising oil prices and climbing Treasury yields provided support.reuters+2

Jobs Data Takes Center Stage

Investors are focused on Friday's U.S. employment report for clues on the Federal Reserve's interest-rate path. Labor market indicators this week have been mixed: job openings growth in June came in lower than expected, and private employment growth in July arrived softer than anticipated, while initial jobless claims remained below 200,000 for a third straight week.investing

The Canadian dollar steadied near a seven-week high, trading at 1.4015 per U.S. dollar after touching its strongest intraday level since June 17 at 1.3991. Canadian employment data, also due Friday, is expected to show a gain of 15,000 jobs in July with unemployment holding at 6.5%, according to Reuters. Strategists at Monex Europe said the data is unlikely to shift expectations for the Bank of Canada to leave its benchmark rate on hold at 2.25%.reuters

Iran Talks Add Uncertainty

Diplomatic developments in the Middle East added another layer of complexity. Iran said it had reached a preliminary understanding with Oman on a proposed shipping route through the Strait of Hormuz, a key artery for roughly a fifth of global oil shipments. However, Iran's Fars News reported that the initial framework would prohibit passage of U.S. and Israeli vessels until compensation was paid, terms likely unacceptable to Washington.investing+1

Oil prices rose on Thursday as concerns mounted about Red Sea shipping, with crude gaining 2.8%. The volatility in oil prices has upended inflationary dynamics and caused division among Fed policymakers regarding the appropriate path of monetary policy.investing+1

Yen Weakens After Intervention

The Japanese yen slipped against the dollar, with USD/JPY topping 158 for the first time since a landmark joint U.S.-Japan currency intervention. U.S. Treasury Secretary Scott Bessent earlier this week confirmed that Washington had conducted the first joint yen-buying operation with Japan since 2011.investing

"Make no mistake about it. The intervention needs to be followed up by real policy change in Japan. And that means the policy rate needs to be lifted to validate the money put on the table," said Joseph Brusuelas, principal and chief economist at RSM US.investing