The US dollar weakened on Thursday ahead of the closely watched US employment report, which could either reinforce or challenge market expectations for additional Federal Reserve interest rate hikes this year. Meanwhile, oil prices continued to decline, while semiconductor stocks remained under pressure after their strong performance during the previous quarter.

Money markets are currently pricing in one Federal Reserve rate hike by October, with roughly a 40% chance of a second increase before the end of the year.

If Thursdays US jobs report released a day earlier than usual because of Fridays Independence Day holiday comes in stronger than expected, it could reinforce those expectations and push both US Treasury yields and the dollar higher.

A weaker-than-expected report, however, could force investors to reassess the outlook for US interest rates.

Economists surveyed by Reuters expect the US economy to have added 110,000 jobs in June, although forecasts vary widely between 25,000 and 200,000 jobs, increasing the potential for a significant surprise.

The unemployment rate is expected to remain unchanged at 4.3%.

Yen jumps amid intervention speculation

The US employment report is attracting as much attention in Tokyo as it is in Washington, with the yen trading near its weakest level in almost 40 years against the dollar and investors increasingly focused on the possibility of intervention by Japanese authorities.

In a move that highlighted those concerns, the yen suddenly surged during early European trading on Thursday, sending the dollar down 0.9% to 161.15.

The exact cause of the move was not immediately clear, although analysts noted that it was less dramatic than previous market reactions linked to official intervention.

Takeshi Ishida, market strategist at Kansai Mirai Bank, said: If this move was intervention-related, it was relatively limited. The Japanese government may have acted ahead of potentially strong US employment data. I had expected intervention if the yen weakened toward the 163164 range against the dollar.

He added: Intervention would be more effective if the US jobs report comes in weak, because it would become more difficult for the Federal Reserve to justify raising interest rates.

Dollar retreats against major currencies

The dollar also weakened against several major currencies as traders adjusted positions ahead of the employment data release.

The euro rose 0.3% to $1.1417, while sterling gained 0.6% to $1.3353.

The yen also advanced against both the euro and the British pound.

In the bond market, the yield on the benchmark 10-year US Treasury note rose two basis points to 4.99%.