FOREX-US dollar gains against peers, pound sterling drops as markets weigh Fed cut

The U.S. dollar gained against major currencies including the yen, Swiss franc and the euro on Wednesday as data helped to support market expectations of a Federal Reserve interest rate cut, while the pound sterling fell amid a selloff in British government bonds.

Traders were also positioning ahead of the Labor Department's comprehensive employment report for June, due to be released on Thursday, and the July 4 holiday. The dollar had lost ground briefly but regained momentum after the ADP National Employment Report showed that U.S. private payrolls fell for the first time in more than two years in June, suggesting the Fed might cut rates as soon as September. Senate Republicans passed President Donald Trump's massive tax-cut and spending bill on Tuesday by the narrowest of margins, which is expected to add $3.3 trillion to the national debt. Debate over the legislation now returns to the House of Representatives.

The dollar was up 0.44% to 144.060 against the Japanese yen , on track to snap two straight sessions of losses. It was up 0.34% to 0.79380 against the Swiss franc, on track to gains after seven consecutive sessions of declines. "The dollar is bouncing against G10 currencies and it's not coincidental as it is coming with almost a 20 basis point rise in U.S. interest rates," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

British bonds suffered their worst selloff since October 2022, the day after the government sharply scaled back plans to cut benefits and there was speculation about the future of the country's finance minister. Sterling weakened 1.06% to $1.3599 against the dollar, dropping to a one-week low and poised to snap two straight sessions of gains. "It's not just the British pound that is sharply lower but the gilts are under a lot of pressure as well. I think it's just a crisis of confidence in the Labour government," Chandler added.

The euro fell 0.33% to $1.176825 against the dollar but gained 0.9% versus the pound sterling. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.42% to 97.04. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 0.4 basis points to 3.773%.

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