FOREX-Dollar hits six-week high as US jobless claims unexpectedly fall

By Karen Brettell

NEW YORK, Jan 15 (Reuters) - The dollar reached a six-week high on Thursday after data showed that the number of Americans filing new applications for unemployment benefits unexpectedly fell last week, further boosting expectations that the Federal Reserve will keep rates on hold for the next several months.

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.

“We are at the lower end of the range,” said Lou Brien, strategist at DRW Trading, adding that market participants are likely “shifting positions a little bit and pushing the dollar higher as a result."

Brien notes, however, that the U.S. data overstates jobs growth due to flaws in how the data is calculated from the "birth-death model." Annual revisions to payrolls data are likely to reveal a much weaker labor market when they are released, though those reports come with a significant lag, he said.

Fed funds futures have pushed back expectations for the next rate cut to June due to the improving labor data and as Fed policymakers continue to express concern about still sticky inflation.

Friday’s jobs report for December showed that the unemployment rate fell more than economists had expected, to 4.4%.

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 despite uncertainties and continued risks to both the Fed's inflation and employment mandates.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro,
rose 0.24% to 99.31, and reached 99.49, the highest since December 2.

The euro EUR= fell 0.25% to $1.1613, and got to $1.1592, also the lowest since December 2.

Risk sentiment was boosted after U.S. President Donald Trump said on Wednesday he has no plans to fire Jerome Powell despite a Justice Department criminal investigation into the Federal Reserve chair, but it was "too early" to say what he would ultimately do.

Trump also said he had been told that killings in Iran’s crackdown on protests were easing and that he believed there was no current plan for large-scale executions, adopting a wait-and-see posture after earlier threatening intervention.

The U.S. and Taiwan, meanwhile, reached a trade deal that the U.S. Commerce Department said on Thursday would drive a "massive reshoring of America’s semiconductor sector."

JAPANESE ELECTION IN FOCUS

The Japanese yen weakened on concerns that Japanese Prime Minister Sanae Takaichi will have more leeway to introduce more fiscally expansionist policies.

Takaichi plans to dissolve parliament next week and call a snap parliamentary election, the secretary general of her party said on Wednesday, as she seeks public backing for her spending plans.

If Takaichi's Liberal Democratic Party secures a majority in the Lower House, the yen is likely to weaken further, TD Securities analysts led by Alex Loo said in a report.

"A strong public mandate may embolden Takaichi to opt for more aggressive fiscal policies in the eyes of investors. This likely serves as the catalyst for USDJPY to breach the 162 high," they said.

If the party fails to win a majority, then "the push higher in USDJPY can finally take a breather, and we could see USDJPY back below 156 as investors pare back their JPY shorts," TD added.

The Japanese yen JPY= was last down 0.02% against the greenback at 158.48 per dollar.

It held below an 18-month low of 159.45 reached on Wednesday, however, as traders watch for a possible intervention to shore up the currency.

Japanese authorities said on Wednesday they would not rule out any options to counter foreign exchange volatility.

In cryptocurrencies, bitcoin BTC= fell 2.18% to $95,384.