US dollar weakens as traders assess economic data; YEN set for strong WEEKLY gains

NEW YORK, Feb 12 (Reuters) – The U.S. dollar edged lower against major currencies on Thursday as traders assessed a stream of economic indicators for their monetary policy implications while the Japanese yen continued its march towards one of its strongest weekly finishes in a year.

U.S. Labor Department data on Thursday showed a less than expected decrease in the number of Americans filing new applications for unemployment, consistent with economists’ view that the labor market was stabilizing.

That data was on top of indicators showing a drop in the U.S. unemployment rate amid strong jobs growth in January and weak retail sales in December. Inflation figures are due on Friday.

The euro was last up 0.12% against the dollar at $1.18845. The dollar was down 0.49% against the Swiss franc at 0.76810.

“I think we’re still looking for guidance on a lot of the bigger questions around the Fed and the state of the U.S. economy, which are tied together,” said Marvin Loh, senior global market strategist at State Street in Boston.

“Earlier in the week, we got retail sales numbers that made things look pretty bad and then we got a payroll numbers, which were pretty much affirming the no-fire, no-hire environment that we have and one where the Fed is going to wait on hold until it gets a better sense on tariffs, inflation, and whether or not the retail sales numbers are actually signalling an impending recession,” Loh added.

The market is pricing a Fed that’s going to be on hold until the middle of the year and that’s weighing on the dollar, he added.

Markets are now pricing in a 94% chance that the Fed will leave rates unchanged at its next meeting, although the probability of a rate cut at its June meeting is now at nearly 50%, according to the CME’s FedWatch tool.

The dollar index was down 0.14% to 96.78, on track for the fifth straight session of declines.

YEN POISED FOR BIG WEEKLY GAIN

The Japanese yen was set for a strong weekly finish against the dollar buoyed by optimism from Prime Minister Sanae Takaichi’s Liberal Democratic Party landslide victory at Sunday’s election.

The emphatic victory has emboldened Takaichi’s mandate to boost investment and lower taxes to rev up the economy, all of which could heighten the hurdle for the Bank of Japan to further raise borrowing costs.

“It’s a pretty significant victory and I think it pushes back against how Japan has operated as a country for several decades. So we’ll see if they put the fiscal stimulus out there and whether or not rate cuts, which we think should continue to make their way into the BOJ, materialize,” Loh said.

The yen was up 0.35% against the dollar at around 152.760, on track for the fourth consecutive session of gains. If the yen’s strength holds through to Friday it would mark the largest weekly rise since February 2025.

Elsewhere, the Australian dollar traded near three-year highs after the central bank hiked rates and flagged the possibility of more to come as it combats inflation.

The Australian dollar was last up 0.03% versus the greenback to $0.7128 , which is near its highest level since February 2023.

The Chinese yuan strengthened 0.26% against the greenback to 6.892 per dollar.

(Reporting by Chibuike Oguh in New York; Additional reporting by Sophie Kiderlin and Tom Westbrook; Editing by Ros Russell)