Yen and dollar drift as markets await Iran deal news, look towards payrolls

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LONDON, Aug 6 : Currency markets drifted on Thursday with the Japanese yen retracing some intervention-led gains and the dollar pinned near a six-week low, as investors awaited more details on a proposed U.S.-Iran deal and looked ahead to Friday's U.S. jobs report.

The yen was a touch softer at 157.88 per dollar following modest declines over the past two sessions. It has now given back some intervention-driven gains after touching 155.20 per dollar on Monday, but remains well off a multi-decade low of almost 164 reached in July.

"Stretched positioning, the involvement of the U.S. and the fact that the yen is historically undervalued all suggest that the current round of intervention has a better chance of propping up the yen for longer than some previous ones," said Jonas Goltermann, chief markets economist at Capital Economics. 

The euro was steady at $1.1544 and sterling traded down 0.1 per cent at $1.3454. The New Zealand dollar and the Australian dollar were 0.2 per cent weaker, last trading at $0.5873 and $0.7039, respectively.

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The dollar index, which tracks the U.S. currency against six major peers, was up 0.1 per cent at 99.76, edging higher after it hit a six-week low on Monday.

EYES ON THE GULF

Markets remained watchful as tensions continued to play out in the Gulf, after Reuters reported a proposed deal between Iran and Oman to help end the U.S.-Iran conflict could give Tehran control over inbound traffic through the Strait of Hormuz.

However, there was no immediate U.S. comment on the proposal. President Donald Trump has said a deal to reopen the strait was imminent, but U.S. 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 were steady at around $79.50 a barrel, near the levels last seen when the U.S. and Iran signed an interim peace agreement in June.

"The market's very much in sort of watch and wait mode," Ray Attrill, head of FX strategy at National Australia Bank, said 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.

PAYROLL DATA IN FOCUS 

Investors are now also turning their focus to U.S. payroll data that could provide more clues on the Federal Reserve's interest rate path, after data showed the country's services sector stayed strong in July while services-sector employment slowed. 

A divided Fed left rates unchanged last month but Chair Kevin Warsh delivered an unwavering commitment to bring inflation lower, leaving the door open to a possible rate hike in September.  

"Any data release after the Fed meeting in July is just very important," said ING FX strategist Francesco Pesole. 

"Tomorrow's payrolls could be pretty big for dollar-yen. If it's a hot print then you would probably start to see a new build up of speculative longs on dollar-yen."

A Reuters survey of economists expected July's employment report on Friday to show nonfarm payrolls increased by 80,000 jobs in July after rising 57,000 in June. The unemployment rate is forecast to hold steady at 4.2 per cent. 

Fed Governor Lisa Cook said on Wednesday that she was open to the idea that the central bank may need to raise its short-term interest rate target to deal with "too high" levels of inflation in the U.S. economy.

San Francisco Fed President Mary Daly said she was "completely supportive" of last week's decision to hold rates steady and said more data is needed before September's meeting.

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