Dollar licks wounds after jobs shock; Aussie dips as inflation cools

By Kevin Buckland

TOKYO The dollar nursed its sharpest drop in a month and a half on Wednesday, as investors bet that softer-than-expected U.S. jobs data reduced the chances of further Federal Reserve rate hikes.

The Japanese yen hovered around 146 per dollar following its overnight rebound from a 10-month trough at 147.375, as a drop in Treasury yields took away support for the U.S. currency.

The Australian dollar dropped from near a two-week peak after inflation there cooled by more than economists predicted in July.

China's yuan was buoyed above a 10-month low in offshore trading after the country's central bank again set a much stronger than anticipated official mid-point.

Cryptocurrency bitcoin eased back slightly after surging more than $2,000 in the previous session to hit a nearly two-week top at $28,142, following a court ruling that could pave the way for a first-of-its-kind spot bitcoin exchange traded fund.

The U.S. dollar index - which measures the currency against six developed-market peers including the yen and euro - was little changed at 103.57 after pulling back from as high as 104.36 overnight after a sharp drop in the U.S. JOLTS job openings data to a 2-1/2 year low in July.

"With traders now sensitive to weaker U.S. data in hopes of the Fed's peak rate, I'd expect USD bears to pounce on the back of any data which backs up the JOLTS jobs report," said Matt Simpson, a market analysts at City Index.

"Whilst this brings excitement that yields and the U.S. dollar have topped, we'd warrant some caution given it was in response to second-tier employment data, and there is plenty of more data to come out this week," culminating in Friday's monthly non-farm payrolls report, Simpson added.

The two-year Treasury yield, which is most sensitive to expectations for monetary policy, slumped as much as 18 basis points (bps) to 4.871% before recovering to around 4.9% in Asian trading hours.

The 10-year yield held near Tuesday's low of 4.106%, a level last seen on Aug. 11, hovering at around 4.13%.

The dollar bought 146.14 yen, recovering 0.2% from Tuesday.

The euro edged down 0.1% to $1.08675 after rallying 0.56% overnight.

Money market traders currently place 86.5% odds for the Fed to keep rates steady on Sept. 20, although the odds for a hike at the following meeting in November are close to 50/50.

Investors had raised hawkish Fed bets recently amid a spate of resilient data. Fed Chair Jerome Powell said on Friday that further tightening may be needed to cool still-too-high inflation, but also promised to move with care.

Meanwhile, Australian inflation slowed to a 17-month low in July, reinforcing the case for the Reserve Bank to hold rates steady at its policy meeting next week.

The Aussie dollar dipped as much as 0.46% after the data before last trading 0.17% lower at $0.64685.

The Chinese yuan weakened slightly in offshore markets to 7.2929 per dollar, but remained well above the Aug. 17 low of 7.3490 per dollar.

The People's Bank of China set the official mid-point for onshore trading at 7.1816, around 1,000 pips firmer than the Reuters estimate, something it has done every day since the middle of the month.

(Reporting by Kevin Buckland; Additional reporting by Tom Westbrook; Editing by Lincoln Feast.)