U.S. dollar dips after payrolls shock, focus turns to inflation

The dollar languished near a more than two-month low versus major peers on Monday as investors continued to assess the implications for monetary policy of a disappointing U.S. employment report, ahead of inflation data this week.

The U.S. created only a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher, pouring cold water on speculation the pandemic recovery could spark faster inflation that the Federal Reserve anticipates.

The dollar index, which measures the greenback against six rivals, stood at 90.178, after dipping as low as 90.128 for the first time since Feb. 26.

Notably, the British pound rallied 0.3%, rising as high as $1.4036 for the first time since Feb. 25, despite Scotland’s leader saying another referendum on independence was inevitable after her party’s resounding election victory.

“The USD’s choppy downtrend can continue this week,” Commonwealth Bank of Australia strategist Kim Mundy wrote in a client note, predicting a break above $1.22 for the euro.

“The unexpected slow recovery in the U.S. labour market reinforces the FOMC’s patient approach to monetary policy,” while “the improving global economic outlook is a medium-term weight on the USD.”

The euro rose 0.1% to $1.2172, earlier touching the highest since Feb. 26 at $1.2177.

The dollar was little changed at 108.57 yen, not far from its lowest since April 27.

The Aussie dollar ticked 0.1% higher to $0.78535, close to Friday’s more-than-two-month high of 0.7863.

Canada’s loonie rallied to a fresh 3-1/2-year high of $1.2111.

In cryptocurrencies, ether changed hands at $3,918.78 after reaching a record $3,985 on Sunday. The second-biggest digital token has rallied 41% so far this month.

Bigger rival bitcoin remained stuck around $58,000, consolidating after retreating as low as $47,004.20 on April 25 following its surge to a record $64,895.22 in the middle of that month.

Meanwhile, no. 4 virtual currency dogecoin languished around $0.56 after losing more than a third of its price on Sunday, when Elon Musk called the token a “hustle” during his guest-host spot on the “Saturday Night Live” comedy sketch TV show. [nL1N2MW0KS]

“Musk is probably happy to jump on the joke of what is a meme(coin), but investors are probably feeling real pain now,” said Justin d’Anethan, Hong Kong-based head of Exchange Sales at Diginex, a digital asset exchange.

“The supply is essentially unlimited (for dogecoin), and so unsustainable long-term. It’s a question of who will sell first and who will be left holding the bags.”

Dollar under pressure as U.S. payrolls data could spur more risk-taking

The dollar stayed under modest pressure on Friday ahead of a key U.S. jobs report that could cement expectations of a strong economic recovery and increase investor appetite for stocks, higher-yielding currencies and commodities.

The dollar’s index against six other major currencies stood near its lowest level this week, at 90.867, having lost about 0.4% overnight.

As the dollar is softer against most currencies, the euro outshone many others, having gained 0.5% on Thursday and last stood at $1.2067.

Against the yen, the dollar dipped to 109.05 yen, almost flat so far on the week as its rebound since late April has lost steam.

U.S. payrolls data, due at 1230 GMT, is expected to confirm the economy’s solid path to recovery from the pandemic, with economists expecting 978,000 new U.S. jobs for April, after bumper gains of 916,000 in March.

The unemployment rate is expected to fall to 5.8% from 6.0% in March.

Ahead of the closely watched report, data showed on Thursday the number of Americans filing new claims for unemployment benefits fell below 500,000 last week for the first time since the Covid-19 pandemic started more than a year ago.

Signs of strong job recovery are something of a double-edged sword for markets.

They could boost risk appetite and weigh on the safe haven dollar. But if they stoke inflation worries and lead to expectations of reduction in the Federal Reserve’s stimulus, it may boost U.S. bond yields and the dollar.

“In March, the dollar rose sharply as everyone was talking about inflation. But that has lost momentum. I think it should be difficult to keep talking about inflation worries without actual evidences,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

“Since then, we are stuck with this conundrum about whether a strong job data would lead to more risk-taking or more inflation worries,” she added.

For now, many traders are inclined to bet on further risk-taking, given that so far most Federal Reserve policymakers have downplayed the risks of higher prices, a sign stimulus tapering will not be on the agenda any time soon.

“Markets are convinced that the Fed won’t make actions until the U.S. will see a full employment. That means positive environment for risk assets such as stocks,” said Bart Wakabayashi, Tokyo branch manager of State Street. “I often hear people say they are fine with the idea of selling the dollar. The question is becoming, what you should buy against the dollar?”

The Canadian dollar has become a currency of choice for some, gaining almost 1% overnight to a 3-1/2-year high of C$1.21455 and last stood at C$1.2157.

The currency has been bolstered by oil price gains and the Bank of Canada’s recent shift to more hawkish guidance.

The Chinese yuan also held firm near a two-month high, standing at 6.4655 per dollar in offshore trade, just short of its April 30 peak of 6.4613.

On the other hand, the British pound traded at $1.3896, unable to hold on to gains made on Thursday after the Bank of England slowed the pace of its trillion-dollar bond-purchasing program.

The decision was largely expected and the BOE stressed it was not reversing its stimulus.

The British currency is capped for now by uncertainties over a Scottish election that could trigger a showdown with British Prime Minister Boris Johnson over its independence movement.

Although the polls already closed at 2100 GMT, votes will not be counted until Friday morning due to the coronavirus pandemic.

Just over a third of the results will be announced on Friday and the remainder will be announced on Saturday.

Elsewhere, ether hit a fresh record high of $3,610.04 and last traded at $3,442.36.

Bitcoin fetched $55,875, trapped in a range between $53,000 and $59,000 over the past week.

Dollar near two-week high as U.S. jobs data watched for Fed clues

The dollar hovered near a two-week high on Thursday, consolidating ahead of a key U.S. jobs report that may provide clues on when the Federal Reserve will dial back monetary stimulus.

The greenback has rebounded from a one-month low over the past week, swung by U.S. economic data that has largely supported the case for a rapid recovery from the pandemic, with traders weighing whether a lift in inflation may force the Fed’s hand earlier than policymakers have so far suggested.

The Canadian dollar traded near a three-year high, buoyed by oil price gains, while the Aussie slipped amid a deterioration in Australia’s relationship with China.

Cryptocurrency ether was close to a record high after setting new all-time peaks in each of the past nine sessions.

The dollar index, which measures the U.S. currency against six major peers, was little changed at 91.311 on Thursday, after rising as high as 91.436 in the previous session for the first time since April 19. It had dipped as low as 90.422 on April 29.

“The USD is likely to continue to respond to the debate about whether or not the Fed’s view that inflation will be transitory is correct,” Rabobank strategist Jane Foley wrote in a research report.

With several forecasters predicting a one-million-plus increase in nonfarm payrolls, “the USD may continue to find a good level of support in the near-term,” with the currency strengthening to $1.19 per euro over a one-month horizon, she said.
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Fed Vice Chair Clarida says he still doesn’t think it’s time to talk about tapering

The euro traded right around the psychologically important $1.20 mark on Thursday, a day after dipping to $1.1986 for the first time since April 19.

The dollar bought 109.375 yen , consolidating after rallying as high as 109.695 on Monday, a level not seen since April 13.

So far, Fed Chair Jerome Powell has argued the labor market is far short of where it needs to be to start talking of tapering asset purchases. The central bank has said it will not raise its benchmark Fed funds rate through 2023.

Three Fed officials spoke on Wednesday, with Chicago Fed President Charles Evans saying that while he was more optimistic about U.S. growth than he was a few months ago, he expects monetary policy to stay super-easy for some time.

Boston Fed President Eric Rosengren said inflation will be temporarily distorted this spring as the U.S. economy works through imbalances caused by the pandemic but the pressures should be short-lived and should not lead to a pullback in monetary policy.

Cleveland Fed President Loretta Mester said more progress will be needed in the job market before the Fed’s conditions for reducing its extensive support will be met.

“Despite constant reassurances from (U.S. Treasury Secretary Janet) Yellen and an array of Fed officials that the coming increase in inflation will prove ‘transitory,’ … markets are evidently a bit more worried,” National Australia Bank strategist Rodrigo Catril wrote in a client note.

The dollar bounced on Tuesday after Yellen said rate hikes may be needed to stop the economy from overheating, though she later downplayed the immediacy of tightening.

The commodity-linked Canadian dollar traded at C$1.22665 per greenback after hitting a three-year high of 1.2252 on Wednesday, helped by higher crude prices and optimism over the global economic recovery.

The Aussie, though, fell 0.2% to $0.7728 after China said it would indefinitely suspend all activities under the China-Australia strategic economic dialogue mechanism.

China’s yuan edged higher to 6.4801 per dollar in offshore trading.

Sterling was little changed at $1.3899, consolidating around that level over the past two weeks with the Bank of England expected by some forecasters to announce a tapering of its bond-buying program at a meeting later Thursday, after vaccinations bolstered Britain’s economic recovery.

In cryptocurrencies, ether traded at $3,462.62 after reaching a record $3,559.97 on Tuesday, skyrocketing nearly 800% this month.

Bigger rival bitcoin was around $56,755, vacillating between around $59,000 and $52,000 in recent days. It marked a record high at $64,895.22 in mid-April, but then lost momentum, slumping as low as $47,004.20 toward the end of that month.

Dollar struggles to extend rally, traders eye major euro bulwark

The dollar tried to extend a rally on Wednesday as chatter about the possibility of higher U.S. interest rates and a sell-off in tech stocks soured risk sentiment to the benefit of the safe-haven currency.

The dollar’s bounce on Tuesday put pressure on the euro, which dropped to $1.2021 and threatened to breach important chart support in the $1.1995/1.2000 area.

“If sustained, this could suggest today’s session may be important for near-term direction, particularly if EURUSD managed to close below the key $1.20 pivot,” said Ned Rumpeltin, European head of FX strategy at TD Securities.

“We think we will need to see a daily close below the $1.20 mark to give more credence to observations that the USD tends to appreciate broadly during the month of May.”

Against a basket of currencies, the dollar was barely changed around 91.21 but away from a recent two-month low of 90.422. It needs to clear resistance at 91.425 to extend the rebound.

Rumpeltin noted that over the last 10 years, the dollar had averaged gains against each of its G10 counterparts in May.

The bounce was partly sparked by comments from U.S. Treasury Secretary Janet Yellen that rate hikes may be needed to stop the economy overheating.

Yellen later downplayed their importance, but even the slightest mention of U.S. tightening has an outsized impact in markets that have become so dependent on monetary stimulus.

The effect was apparent in large-cap tech stocks, which suffered hefty losses overnight, dragging the Nasdaq down 1.88%.

So far, Federal Reserve Chair Jerome Powell has argued the labor market is still far short of where it needs to be to start talking of tapering asset buying.

That position could be tested on Friday should the April payrolls report be as strong as some are suggesting. The median forecast is for a rise of 978,000, but estimates stretch as high as 2.1 million.

Three more Fed officials are speaking later on Wednesday providing the opportunity for further market-moving comments.

Westpac analysts pointed to expectations for a blockbuster payrolls number as a factor helping the dollar build a base.

“The Fed’s more influential dovish core will have the last word, but that won’t stop more hawkish regional Fed presidents from producing the odd tapering headline,” they said in a note, adding the dollar’s uptrend could go as far as 92 if payrolls beat the lofty expectations.

Europe’s reopening and pick up in the vaccination pace there could limit the dollar’s gains, they wrote.

Trading was limited in Asia with Japan and China on holiday, but the New Zealand dollar blipped higher to $0.7170 when local jobs data proved strong than expected.

The dollar was steady on the yen at 109.31 and again needs to break resistance at 109.61 to encourage more speculative bids.

One drag for the dollar is the U.S. trade deficit, which expanded to a record $74.4 billion in March.

“This is a medium-term weight on US dollar because the U.S. will become increasingly dependent on long term foreign investments to finance the current account deficit,” said Kim Mundy, a senior economist & currency strategist at CBA.

“As a result, we believe the recent USD downtrend has further to run.”

Dollar rises after U.S. data, but posts largest monthly fall since December

The dollar rose on Friday, extending gains after upbeat data on personal income, spending, and manufacturing in the U.S. Midwest, with market participants also taking profits on the currency’s short dollar positions this month.

The dollar index was down 2.1% for the month of April, its largest monthly loss since December. Next week’s U.S. data, which includes non-farm payrolls for April and key U.S. manufacturing and services indexes, should reinforce expectations of a strong recovery from the pandemic by the world’s largest economy.

“Another round of potentially strong data in the U.S. may add pressure to start discussing tapering,” said ING in its latest research note. “With some possible fresh weakness in Treasuries on the way, the U.S. dollar might find some respite against the low-yielders,” the bank added. After the Fed’s policy meeting on Wednesday, Fed Chair Jerome Powell acknowledged the U.S. economy’s growth, but said there was not enough evidence of “substantial further progress” toward recovery to warrant a change to its ultra-loose monetary settings.

Friday’s data showing a 4.2% rebound in U.S. consumer spending in March, amid a 21.1% surge in income as households received additional COVID-19 relief money from the government, supported the dollar. That led to a 0.4% rise in the core personal consumption expenditures (PCE) index, compared with a gain of 0.3% the previous month.

“Powell remained firm on the Fed’s interest rate path and QE (quantitative easing) program on Wednesday, leaving traders with the uncomfortable feeling inflation could run away – and run away quickly,” Adam Corbett, currency analyst, at Cambridge Global Payments, said in a research note after the data.

Similarly, the dollar also gained after the Chicago Purchasing Management Index (PMI) showed a reading for April of 72.1, the highest in almost four decades.

In afternoon trading, the dollar index ended the week up 0.5%. It was last up 0.7% at 91.263, the largest daily gain since late February.

“The current strength in the dollar is likely a pivot to the seasonal trend that we tend to see in May and June,” said Mazen Issa, senior currency strategist at TD Securities in New York, after the greenback’s underperformance this month. He added that April is typically one of the weaker months for the dollar.

The Canadian dollar climbed to a more-than three-year high of C$1.2266 per greenback on Friday, on track for a 1.6% weekly gain that would be its biggest since early November. The U.S. dollar was last flat at C$1.2276.

In contrast to the Fed’s dovishness, the Bank of Canada has already begun to taper its asset purchases.

Canada’s commodity-linked loonie got additional support from a surge in oil to a six-week peak, along with higher lumber prices.

The euro traded 0.8% lower at $1.2025, posting its largest daily percentage fall since late February. But it was up 2.5% for the month versus the dollar, its best monthly showing since July 2020.

The dollar also rose against the yen, up 0.3% at 109.29, rising 1% for the week. But it was down 1.3% for the month, its worst monthly showing since July 2020 as well.