FX Rate News

The dollar rose sharply on Friday, boosted by a strong U.S. jobs report toward its biggest weekly gain in seven weeks.

The report showed jobs grew more than expected in July, pushing bond yields higher on the view that the Federal Reserve may act more quickly to tighten U.S. monetary policy.

The dollar index against major currencies was up nearly 0.6% at 92.776 at 3:06 p.m. ET.

Against the safe havens of the Japanese yen and Swiss franc, the dollar had its biggest daily gains since June, reflecting a risk-on tone as well as the appeal of higher U.S. interest rates.

The report on U.S. nonfarm payrolls showed jobs increased by 943,000 in July compared with the 870,000 forecast by economists polled by Reuters.

The news rekindled dollar momentum, grounded in the middle of the week by statements from Fed Vice Chair Richard Clarida suggesting that conditions for hiking interest rates might be met as soon as late 2022.

Fed officials have said that improving employment is critical to when they begin to pull back further on extra support they provided for the economy during the pandemic.

Clarida’s remarks lifted Treasury yields after five weeks of declines, while “real” yields, excluding inflation, are set to snap a six-week streak of declines.

The yield on the 10-year Treasury note touched 1.3%, up from 1.18% on Monday.

The greenback rose 0.9% against the Swiss franc and 0.4% on the Japanese yen, which traded at 110.215 to the dollar.

The euro fell 0.6% to $1.1759, pressured early in the session by weaker than expected German industrial orders data.

The British pound fell nearly 0.4% to $1.3878.

In contrast to the U.S. payroll report, in Canada a domestic employment report showed far fewer jobs added in July than expected. The greenback rose 0.4% to 1.2555 Canadian dollars.

Analysts have cautioned it will take more evidence than one jobs report to push U.S. yields significantly higher again. Friday’s yield remained nearly one-half a percentage point lower than at the end of March.

Reactions to monthly jobs reports have changed often this year in days following release of the data, strategists at Wells Fargo Securities found when they looked at the 10-year Treasury yield.

Markets will next be watching for comments from Fed policymakers at the symposium of central bankers in Jackson Hole, Wyoming late this month.

Big moves across exchange rates are unlikely until Fed officials signal readiness to lead other central banks in pulling back economic support, said Joseph Trevisani, senior analyst at fxstreet.com.

“The Fed is pumping far more money into the U.S. economy and, by diffusion, to the rest of the world than anybody else,” Trevisani said.

When Fed policy makers are confident in U.S. employment gains to raise interest rates, the global economy could be strong enough to bolster riskier currencies instead of the dollar.

A recent Reuters poll of strategists showed most predicting a dollar fall over the next year.

The dollar was pinned near recent lows against other currencies on Tuesday, as traders awaited U.S. jobs data for a guide to the rates outlook, while labor market strength lifted the kiwi in anticipation of a New Zealand rate hike within weeks.

New Zealand’s jobless rate unexpectedly fell to 4% last quarter, its lowest since December 2019, and the New Zealand dollar jumped 0.5% to a one-month high of $0.7056.

“We’ve flown past full employment, and the economy is becoming quite overheated,” said analysts at ANZ, who expect 25 basis point hikes in August, October, November, February and May to carry kiwi rates from 0.25% currently to 1.5% by mid-2022.

Elsewhere currencies were broadly steady as markets looked ahead to partial U.S. labor data due later on Wednesday and non-farm payroll figures due on Friday.

The dollar was a touch lower at $1.1870 per euro and the dollar index, which measures the greenback against six major rivals, held at 92.024.

The dollar index has now slipped more than 1% from a 15-weekpeak it struck a fortnight ago as U.S. yields and U.S. rate hike expectations have receded with investors questioning the strength and speed of the economic recovery.

“The big dollar picture is that there is a pullback in Fed hike expectations and we’ve seen the U.S. dollar head south,” said National Australia Bank senior strategist Rodrigo Catril, adding the focus was now on the rates implications of jobs data.

“We’ve all seen progress in the labor market, but the question is how much is good enough,” he said.

Economists polled by Reuters expect ADP payrolls data, due around 1215 GMT, to show 695,000 jobs were added last month -roughly steady on a month earlier — and for Friday’s non-farm payrolls to show 880,000 jobs added in July.

Catril said it could take several consecutive months of that kind of growth, or even stronger, to bring down unemployment sufficiently for central bankers to take note.

Safe haven currencies, meanwhile, have benefited from the dollar’s softness, particularly as nerves about the spread of the delta coronavirus variant keep a degree of caution in currency markets.

After falling since the start of the year, the Japanese yen has gained about 2.5% against the dollar in a month and held at 108.98 yen per dollar on Wednesday, after touching its highest since late May overnight at 108.875.

The fellow safe-haven Swiss franc has also been on the front foot. It hit a seven-week high of 0.90235 per dollar overnight.

On the other side of the coin, the risk-sensitive Australian dollar has been unable to break resistance around $0.7415, even after the central bank gave investors a hawkish surprise by sticking with tapering plans on Tuesday.

The Aussie last bought $0.7406.

Sterling has found momentum from an encouraging end to Covid-19 restrictions in highly-vaccinated England, which has so far seemed not to cause a spike in virus deaths.

Attention there now turns to a Bank of England meeting on Thursday, with focus on policymakers economic projections and on what they say that means for rates. Swaps markets are beginning to price a hike liftoff around June 2022.

“If the BoE communicates a more cautious outlook, then we could see hike bets by June 2022 pushed back – putting some pressure on sterling,” said Luke Suddards, a research strategist at brokerage Pepperstone.

The dollar was on the back foot against the safe-haven yen and Swiss franc on Tuesday after soft U.S. manufacturing data and rising concerns about the coronavirus delta variant prompted traders to wind back bets on a strong economic recovery.

The dollar traded at 109.34 yen, near its July 19 low of 109.07, which was its lowest level since late May. Against the Swiss franc, the dollar traded at 0.9054 franc, having hit a 1-1/2-month low of 0.9038 in the previous session.

The euro was subdued at $1.1873, having lost a bit of momentum after hitting a one-month high of $1.1909 on Friday while sterling slipped to $1.3889 from Friday’s one-month high of $1.39835.

“The market is moderately risk-off with bond yields falling off a bit since European trade yesterday. There is some caution as the Delta variant is spreading in many places, even in China,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The U.S. yield dropped on Monday shortly after an Institute for Supply Management (ISM) report showed July U.S. manufacturing growth slowed for the second straight month.

“From a historic perspective a 59.5 manufacturing ISM reading is still a very robust activity reading. Nevertheless reaction to the data release by the U.S. Treasuries market suggests the market is concerned over ‘peak growth’ and the potential for more slowdown ahead,” wrote Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.

Clouding the outlook further is the spread of delta variant.

In the United States, Covid hospitalizations in Louisiana and Florida have surged to their highest points of the pandemic, though the country’s top health expert, Anthony Fauci, ruled out another lockdown in the country.

That outweighed any excitement over a $1 trillion infrastructure investment bill that could be ready for a final vote as early as this week.

The delta variant, which U.S. authorities on Monday described as contagious as chickenpox and far more contagious than the common cold or flu, is raging in many Asian countries once thought as successful in containing the disease.

Japan expanded state of emergency curbs to more regions on Monday as cases hit record in Tokyo while in China the delta variant spreads from the coast to inland cities, posing new risks for the world’s second-biggest economy.

Australia’s Queensland state on Monday extended a Covid-19 lockdown in Brisbane, while soldiers began patrolling Sydney to enforce stay-at-home rules.

The Australian dollar was little moved at $0.7367 as investors looked to the Reserve Bank of Australia’s policy meeting at which it is expected to reverse a decision to trim its bond buying program.

The New Zealand dollar rose 0.3% to $0.6989 after the country’s central bank said on Tuesday it would soon begin consulting on ways to tighten mortgage lending standards, as it looks to control an inflated housing market and protect home buyers.