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Dollar at 2-decade high as U.S. job data looms

Greenback rising above 140 yen; also nears 20-year high against euro

The Japanese currency broke the 140 mark against the U.S. dollar in Tokyo on Sept. 2.   © Reuters

SINGAPORE (Reuters) -- The dollar was headed for its third weekly gain in a row and stood near its highest levels in decades against the euro and yen on Friday, with investors in little mood for selling ahead of U.S. labor data that could bolster the case for aggressive interest rate hikes.

A solid U.S. manufacturing survey overnight was enough to push the greenback above 140 yen for the first time since 1998, and it also hit multiyear highs against the British pound and the New Zealand dollar.

Against the stronger dollar, the euro fell back below parity to $0.9967 and was not far from last week's 20-year low of $0.99005. The yen hit a fresh trough of 140.4 in the Asia trade.

The dollar index made a two-decade top at 109.99 overnight and was last at 109.51. It is up more than 1% in the week since Federal Reserve Chair Jerome Powell said at Jackson Hole, Wyoming that rates would need to be high "for some time" to control inflation, surprising markets.

Sterling fell 0.7% overnight and is down about 1.5% this week. It was last at $1.1551 after touching $1.1499 overnight.

The Australian and New Zealand dollars are each down about 1% on the week, with the Aussie last at $0.6789 and the kiwi bottoming at $0.6051, its lowest since May 2020.

"We had thought that the slowing of the economy would be enough to pause Fed hiking by November but Powell's clear nod to restrictive policy points to a higher bar to a pause," said Steve Englander, head of G10 FX research at Standard Chartered.

"We think U.S. labor data would have to slow dramatically to deter a 75-basis-point policy rate hike," he said.

Non-farm payrolls data is due at 1230 GMT and economists expect 300,000 jobs were added in August, which would extend a strong run of data. A surprise well below 275,000 would be needed to change the rates outlook, Englander said.

Fed funds futures are pricing about a 75% chance that the Fed hikes rates by 75 bps this month, and it has been a week of heavy selling in the Treasury market, lifting two-year yields by 12 bps and 10-year yields by 23 bps.

The two-year yield hit a 15-year high of 3.551% overnight and 10-year Treasury bonds hit a two-and-a-half-month high of 3.297%.

The moves have supported the dollar's march on the yen in particular since Japan's yields are anchored near zero.

Japan's government was watching currency moves with an acute sense of urgency, Chief Cabinet Secretary Hirokazu Matsuno said on Friday.

Elsewhere in Asia, the Chinese yuan also remained under pressure at 6.9073 per dollar, with fresh COVID-19 lockdown measures in Chengdu weighing on the investor mood.

Central bank meetings are due in Europe and Australia next week and markets expect hikes. Traders see about a 60% chance of a 50-bps hike in Australia and an almost 80% chance of a 75-bps hike from the European Central Bank.

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