By Hannah Lang
NEW YORK (Reuters) -The dollar hit a two-week low on Thursday as economic data supported expectations for quick interest rate cuts in the U.S., and fell against the battered yen.
An unexpected slowdown in U.S. services growth, supporting the idea of bringing interest rates down, had pushed the dollar lower on Wednesday.
Still, the U.S. currency was able to pare some earlier losses after Minneapolis Federal Reserve President Neel Kashkari said rate cuts might not be required this year if inflation continues to stall.
Richmond Fed President Thomas Barkin said on Thursday that inflation data at the start of this year "has been a little less encouraging," and raises the question of "whether we are seeing a real shift in the economic outlook, or merely a bump along the way."
The dollar index, which measures the U.S. currency against six rivals, was down 0.077% at 104.14 after hitting 103.910, its lowest level since March 21.
The major focus for the rest of the week will be on the release of the monthly U.S. employment report on Friday. Economists polled by Reuters are forecasting 200,000 jobs were added in March.
"Powell seems to still be targeting a June rate cut and that's why I think that this labor report, the reaction could be amplified, particularly if we see non-farm payrolls coming in on the lower side of expectations or below expectations," said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US.
The yen was close to its 34-year low versus the greenback as the Bank of Japan's historic policy shift to end eight years of negative interest rates has failed so far to bolster the currency.
BOJ Governor Kazuo Ueda said the central bank could "respond with monetary policy" if exchange-rate moves affect the country's inflation and wages in ways that are hard to ignore, the Asahi newspaper reported late Thursday.
The rates picture, with U.S. 10-year yields at more than 4% and Japan's still close to zero, is keeping big Japanese investors' cash abroad, where it can earn better returns, depriving the yen of support from repatriation flows.
The yen was up 0.27% versus the dollar at 151.28, after hitting 151.975 last week.
Japanese authorities will likely intervene in the currency market if the yen breaks out of a range it has been in for years and weakens well beyond 152 per dollar, former top Japanese currency official Tatsuo Yamazaki said on Thursday.
"I'm not sure they'll draw the line right at 152, but I think that somewhere near 152 they have to jump in there," said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered (OTC:SCBFF) Bank in New York.
The Swiss franc dropped around 0.6% against the dollar after data showed the Swiss consumer price index rose by a lower-than-expected 1.0% from a year ago in March.
The Swiss franc fell on Thursday to 0.9848 against the euro, its lowest level since early May 2023. A day earlier, it dropped to 0.9095 against the dollar, its lowest level since early November 2023.
Analysts said the further drop in Swiss inflation in March reinforced the view that the Swiss National Bank would cut rates by an additional 50 basis points this year.
The euro was up 0.12% on Thursday and back to the middle of a range it has kept for a year at $1.085.
European inflation came in softer than expected on Wednesday, reinforcing expectations for a European rate cut in June.
Traders gave a leg up to the Australian and New Zealand dollars in response, sending the Aussie above its 200-day moving average and to a two-week high of $0.66180.
The New Zealand dollar has regained a foothold above $0.60 and was last trading 0.33% higher at $0.603. Traders expect New Zealand rate cuts to begin in August but Australian rates to be on hold until November. [AUD/]
Chinese markets were closed for a holiday.
In cryptocurrencies, bitcoin was last up 3.3% at $67,918, while ether was last 0.6% higher at $3,324.