The U.S. dollar stabilized on Thursday after a significant overnight loss, following Federal Reserve Chairman Jerome Powell’s firm dismissal of further rate hikes this year, while the Japanese yen experienced volatility amid speculation of potential intervention.

Powell dismisses further rate hikes

Federal Reserve Chairman Jerome Powell stated that the battle against inflation is more prolonged than initially anticipated.

However, he largely ruled out interest rate hikes for this year, surprising dollar bulls given the latest unexpectedly strong inflation data.

Economic data will be scrutinized more closely now, as Powell emphasized the need to rely on such data, with new weekly jobless claims due later today.

The first significant data release, the U.S. employment report, is scheduled for Friday.

Nonfarm payrolls are expected to show an increase of 243,000 in April, down from 300,000 the previous month, indicating a still-healthy labor market.

Europe’s manufacturing sector remains weak

In Europe, the EUR/USD fell 0.1% to 1.0699 following reports of ongoing declines in the manufacturing sector.

The final Eurozone manufacturing PMI, compiled by S&P Global, dropped to 45.7 in April from 46.1 in March, remaining below the growth-indicating mark of 50 for the 22nd consecutive month.

The bloc’s economy rebounded last quarter from a mild recession and posted quarter-on-quarter growth of 0.3% in January-March, official data showed earlier in the week, but the region’s manufacturing sector is unlikely to advance further in the near future.

GBP/USD lost 0.1% to 1.2509 in a limited range, with the next economic data of interest being Friday’s services PMI.

Services PMI is expected to rise to 54.9 in April, up from 53.1 last month, pointing to the UK’s dominant services sector remaining healthy, which could give the Bank of England room to delay interest rate cuts.

Yen volatile; intervention coming?

In Asia, USD/JPY rose 0.5% to 155.26, recovering from a sudden drop of more than 3% the previous day. This volatility has sparked speculation about further intervention by Japanese authorities to support the yen.

USD/JPY fell from 160 on Monday, a level traders consider a critical threshold for Japan concerning yen weakness. But factors weighing on the yen are likely to remain in play, somewhat limiting the effect of intervention by the Japanese government.

AUD/USD rose 0.1% to 0.6531 despite data indicating that the country’s trade balance contracted in March to a three-year low.