(Updates throughout)
By Amanda Cooper
LONDON, May 3 (Reuters) - The dollar fell on Wednesday,
ahead of an expected rise in U.S. interest rates, and as gloomy
jobs data, a standoff over the U.S. debt ceiling and nervousness
following banking collapses clouded the investment outlook.
U.S. job openings fell for a third straight month in March
and layoffs increased to the highest in more than two years,
data showed on Tuesday, offering hope a weaker labour market
could aid the Fed's fight against inflation.
The dollar index , which measures the U.S. currency
against six others, fell by 0.25% to 101.61, dropping for a
second day in a row.
The Fed is widely expected to raise interest rates by 25
basis points when it concludes a two-day meeting on Wednesday
and investor focus will be on what policymakers signal they
might do next.
Right now, the derivatives market shows traders believe this
will be the last hike before the Fed switches to rate-cut mode.
The central bank has said its actions will depend on incoming
data, much of which has shown the economy is slowing and price
pressures are easing, but not by enough to warrant an abrupt
shift in policy.
"Let’s be clear: a pause is not a pivot. And this is a key
highlight worth reiterating. A pivot implies a move to cuts
later in the year. We aren’t so sure of that," Jack Janasiewicz,
who is lead portfolio strategist at Natixis Investment
Management, said.
U.S financial markets are reeling from the weekend failure
of San Francisco-based First Republic Bank as well as
worries that the government could run out of cash by June if
lawmakers do not strike a deal to raise the borrowing limit,
known as the debt ceiling.
Yields on very short-term Treasury bills have soared in the
last couple of weeks, as investors have sold any bonds likely to
mature around the time of the deadline.
"What traders really want to know if it is ‘one and done’-
or that concerns surrounding the U.S. debt ceiling could at
least see the Fed pause in June," City Index strategist Matt
Simpson said.
"In reality, I suspect that Jerome Powell will maintain his
hawkish mantra as not to undo the plethora of hawkish comments
leading into the blackout period. They could always hold rates
steady in June without feeling the need to signal it today, for
example," he said.
Later on Wednesday, the market will get a look at
private-sector payrolls growth, which could offer a flavour of
what to expect from Friday's employment report, which is
expected to show the U.S. economy created 179,000 jobs in April.
The euro was last up 0.3% at $1.1032, ahead of
Thursday's regular policy meeting by the European Central Bank.
Money markets show a roughly 85% chance the ECB will raise
rates by 25 bps and a 15% chance of 50 bps.
Elsewhere, the Australian dollar fell 0.1%, paring
some of the previous day's 0.5% gain after the Reserve Bank of
Australia delivered a surprise rate rise.
Sterling was up 0.3% at $1.2509 and was flat
against the euro at 88.20 pence.
The Japanese yen rose 0.5% to 135.83 per dollar,
clawing back some of its losses from last week when the Bank of
Japan stuck to its ultra-loose monetary policy.
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(Additional reporting by Ankur Banerjee in Singapore; Editing
by Jacqueline Wong, Simon Cameron-Moore and Barbara Lewis)
