Currency Markets Drift on Iran Deal Concerns, Payroll Jitters

Global currency markets drifted with little direction as investors adopted a wait-and-see stance on a proposed Iran deal and upcoming US employment data.

The yen was little changed at 157.71 per dollar in early trade after weakening for two straight sessions. It has given back some intervention gains after touching 155.20 per dollar on Monday, but remains well off last month's multi-decade low of about 164.

The euro was little changed at US$1.1557 and sterling traded flat at US$1.3469. The New Zealand dollar and Australian dollar were also flat at US$0.5885 and US$0.7056 respectively. The dollar index, which tracks the US currency against six major peers, was little changed at 99.65, struggling to find direction while hovering near a six-week low.

Markets remained watchful as tensions continued to play out in the Gulf after Reuters reported that a proposed deal between Iran and Oman to help end the US-Iran conflict could give Tehran control over inbound traffic through the Strait of Hormuz. There was no immediate US comment on the proposal. President Donald Trump has said a deal to reopen the strait was imminent, but US officials have repeatedly insisted they would never agree to Iran controlling access to the world's most important trade route for energy supplies.

Brent crude futures fell 0.5% to US$79.08 a barrel on Thursday, near levels last seen when the US and Iran signed an interim peace agreement in June.

"The market's very much in sort of watch and wait mode," said Ray Attrill, head of FX strategy at National Australia Bank, in a podcast. "We haven't got the oil market volatility that has really been the key driver of most markets in recent days and weeks," he said, adding that markets were waiting to see whether a deal would be struck at all.

Central banks in focus

Minutes released on Wednesday showed Bank of Japan policymakers debated mounting price risks that likely required more rate hikes, even as they raised borrowing costs to a 31-year high in June. That bolsters the case for another hike as soon as September.

Fuelled by interventions from Tokyo and coordinated action with Washington in recent days, the yen rallied as much as 5% against the dollar but has struggled to retain those gains. In a recent Reuters poll, nearly 95% of respondents said future Japanese currency interventions alone would not sustainably curb the currency's weakness, with nearly all of them saying the BOJ would have to raise interest rates for a lasting impact.

Investors are also awaiting US payroll data for clues on the Federal Reserve's rate path, after figures showed the services sector stayed strong in July even as input costs rose and services-sector employment slowed. A Reuters survey of economists expects Friday's July employment report to show nonfarm payrolls rose by 80,000 after a 57,000 gain in June, with unemployment steady at 4.2%. Fed Governor Lisa Cook said on Wednesday she was open to the idea that the central bank may need to raise its short-term rate target to deal with "too high" inflation.