FX Rate News

The dollar edged up as European markets opened on Monday, recovering from Friday’s drop on U.S. jobs data which was below expectations.

The jobs data was seen as a relief for markets because it showed a pick-up in job growth was not strong enough to raise expectations for the U.S. Federal Reserve to tighten its monetary policy any sooner, hurting the dollar.

There was little risk appetite in currency markets in early trading, as equities dipped amid caution in global markets ahead of U.S. inflation data and the European Central Bank meeting, both on Thursday.

At 0715 GMT, the dollar index was up 0.2% on the day at 90.283. The euro was down 0.2% against the dollar, at $1.21465.

The Australian dollar, which is seen as a proxy for risk appetite, was 0.2% lower at 0.7727.

Dovish rhetoric from ECB policymakers suggests the bank is in no hurry to slow the pace of buying under the 1.85 trillion euro ($2.24 trillion) Pandemic Emergency Purchase Programme (PEPP).

Meanwhile U.S. Federal Reserve policymakers have begun inching toward a discussion about winding that help back.

“A divergence has opened up recently between the ECB and Fed who have signalled a willingness to discuss QE tapering at upcoming meetings,” MUFG currency analyst Lee Hardman wrote in a note to clients.

“It will help dampen upward momentum for EUR/USD. However, the developments are not sufficient to alter our bullish outlook the pair beyond the near-term.”

Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

China’s yuan hovered around the key 6.40 level, with the offshore yuan changing hands at 6.3961 at 0732 GMT.

China’s export growth missed forecasts, while imports grew at their fastest pace in 10 years in May, fuelled by the surging demand for raw materials, data on Monday showed.

“In general, the trade sector continues the strong performance indicating that the manufacturing sector remains the leading role in the post-pandemic recovery,” wrote Commerzbank senior economist Hao Zhou in a note.

“However, the trade data might have little FX market impact, as the authorities vow to keep a stable currency for the time being.”

Elsewhere, the United States, Britain and other large, rich nations reached a landmark deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.

While investors were wary of how tech stocks would react, in terms of currency markets, ING strategists wrote in a note to clients that the plans for a minimum global corporate tax rate of at least 15% could result in a repatriation of global capital over a longer term which would be positive for the dollar.

“Our thoughts here are that the removal (of) tax havens could have implications for the hundreds of billions of dollars of cash parked overseas by US multi-nationals – reducing the incentives to keep cash overseas,” they said.

In cryptocurrencies, Bitcoin was up 1% around $36,166, while ether was up 2% at $2,766. Both were trading within the month’s relatively narrow ranges.

The dollar was perched near multi-week highs on Friday, basking in its biggest gains in about a month after robust jobs data threw investors’ focus on to the strength of the U.S. recovery and on the possibility of it driving policy tightening.

The next test comes later in the day when U.S. non-farm payrolls data is published. The Street’s consensus forecast is for about 650,000 jobs to have been added in May, though the “whisper number” among traders is higher, closer to 800,000.

Private payrolls — a bit of an unreliable guide — delivered a big beat overnight with an increase of 978,000, against forecasts of 650,000, which sent the dollar rallying.

It lifted 0.7% to a three-week high of $1.2118 per euro and rose by the same margin to a two-month high of 110.32 yen. Gains topped 1% against the Aussie and the kiwi, which fell from recent ranges to their lowest in weeks.

China’s offshore yuan softened past 6.4 per dollar in early Asia trade, while other moves were only slight as markets now await the payrolls figures, due at 1230 GMT, with options trade showing it is expected to trigger volatility.

“Clearly traders are covering dollar shorts into the jobs data,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

He reckons, as a rough guide, that a million or more jobs might see the Aussie fall by another 1%, the euro drop about 0.8% and the dollar/yen exchange rate gain that amount as traders factor in a policy response to the strong economy.

“Between 250k-500k jobs and we’ll potentially see dollar/yen fall 0.6% to 0.8%,” Weston said. “A number in line will not give us much to work with, so the moves in the market will be dictated by the broad quality of factors – revisions to the April print of 266k, the unemployment rate, hourly earnings.”

At issue is whether the figure points to the sort of hiring that could reel in pandemic job losses, lift wages and drive broad U.S. growth that increases the trade deficit and weighs on the dollar – or whether things feel like they are overheating.

Positioning data shows investors heavily short dollars, leaving the market hypersensitive to any suggestion of a change in direction for the currency or a shift in the rates outlook – hence the options market is priced for a bumpy ride.

Overnight implied dollar/yen volatility shot up to a month high above 8% on Thursday and euro/dollar implied volatility hit its highest since mid-March.

Brian Daingerfield, head of G10 currency strategy at Natwest, sees a payrolls print around 550,000 as the “goldilocks” number: “strong enough to keep the recovery going but not strong enough to pull tapering fears forward.”

That could weaken the dollar broadly, he said, offsetting Thursday’s moves, while bonds could recover lost ground. Benchmark ten-year U.S. Treasury yields rose 3.6 basis points to 1.6300% overnight and opened near that level in Tokyo on Friday.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, rose 0.7% on Thursday to stand at a three-week high of 90.574 on Friday.

The Australian dollar was licking wounds at $0.7652, after falling to its lowest since mid-April overnight, while the kiwi was parked at $0.7136 after slipping to its cheapest since early May on Thursday.

Sterling was steady at $1.4099 in Asia after dropping through its 20-day moving average as the dollar climbed. The yuan fell to 6.4014.

Cryptocurrencies held on to several days of gains to leave bitcoin at $38,737 and on course for its best week in a month.

The dollar stood near its lowest level in three months against a resurgent euro, and traders pared earlier bets the Federal Reserve may move soon to taper its stimulus though markets were not fully convinced that higher U.S. inflation is transient.

The dollar index, measuring the greenback against a basket of six currencies, was hovering at 90.045, a tad above a three-month low of 89.646 set on Friday.

Minutes from the Fed’s April policy meeting released last week showed a sizable minority of policymakers wanted to discuss tapering bond purchase on worries that pouring more money to an economy on the mend could stoke inflation.

Still, Fed Chairman Jerome Powell’s repeated comments that it is not yet time to discuss a reduction in quantitative monetary easing has led many investors to believe it will be months before the central bank actually tweaks policy.

“Inflation figures have been pretty strong but retail sales may be starting to slow down. And the economic outlook hinges on fiscal policy, which is still uncertain,” said Shinichiro Kadota, senior currency strategist at Barclays.

The White House said on Friday it had pared down its infrastructure bill to $1.7 trillion from $2.25 trillion, with cuts to investments in broadband and roads and bridges, but Republicans dismissed the changes as insufficient for a deal.

With investors pre-occupied with threats of accelerating inflation, U.S. PCE (personal consumption expenditures) data, due on Friday, is seen as one of the biggest tests for markets this week.

The euro traded at $1.2179, flat so far on Monday and off a three-month high of $1.2245 touched on Wednesday.

Some analysts said the currency was capped by comments from European Central Bank President Christine Lagarde on Friday that it is still too early for the bank to discuss winding down its 1.85 trillion euro emergency bond purchase scheme.

Still, the euro and other European currencies have been bolstered by rising optimism about economic reopenings in the region from coronavirus lockdowns.

A preliminary purchasing managers’ index covering the 19-country euro zone’s dominant service industry, published on Friday, bounced to 55.1 from April’s 50.5, well above expectations and its highest since June 2018.

“Although the U.S. led in economic reopenings in the first quarter, Europe is catching up and has further room for improvement, supporting the euro,” said Jun Arachi, currency strategist at Rakuten Securities.

In fact, speculators have been increasing bets against the dollar, preferring other currencies including the euro, in recent weeks.

Data from U.S. Commodity Futures Trading Commission released late on Friday showed speculators slightly increased their net short dollar positions in the latest week while raising long positions, both to their highest level since mid-March.

The British pound stood at $1.4144, off Friday’s three-month peak of $1.4233.

The yen was little moved at 108.92 per dollar, trapped between a high of 109.785 hit after a strong U.S. inflation data and a low of 108.34 in the wake of soft U.S. payrolls data, both touched earlier this month.

In the volatile cryptocurrency market, bitcoin dropped over 7% during the weekend to last trade up 2.4% at $35,528, having fallen to $31,107 at one point on Sunday.

Ether fell to a two-month low of $1,730 on Sunday, down 60% from a record peak hit just 12 days ago, and was fetching $2,178, up 3.8%.

Cryptocurrencies have tumbled after Elon Musk’s Tesla said it will stop accepting bitcoin and after China further clampdown on them.

The dollar bounced off three-month lows against European currencies on Thursday after minutes from the Federal Reserve’s last policy meeting revealed there was more talk of tapering its bond purchases than investors had expected.

In the Fed minutes, several policymakers said that a discussion about reducing the pace of asset purchases would be appropriate “at some point” if the U.S. economic recovery continues to gain momentum.

That surprised investors, given Fed Chair Jerome Powell had said right after that meeting last month that it is not time yet to begin discussing any change in policy.

“The minutes contained wordings that appear to seek to start discussion on tapering at an earlier timing than expected,” said Takafumi Yamawaki, head of fixed income research at JPMorgan.

“If the next jobs data due on June 3 is strong, markets will start bracing for the Fed making a specific mention on tapering at its next meeting in June.”

The euro changed hands at $1.2174, flat on day after having slipped 0.4% in the previous session and off a three-month high of $1.2245.

The British pound slipped to $1.4104, down 0.1% so far on Thursday and slipping further from above $1.42 earlier this week while the Swiss franc eased to 0.90415 per dollar from Tuesday’s 0.89605, its highest in nearly three months.

The dollar rose to 109.15 yen from a one-week low of 108.575 yen touched on Wednesday.

The dollar’s index bounced back from Wednesday’s three-month low to 90.209.

The dollar has been declining over the past few weeks as key Fed officials have repeatedly said they were not ready to discuss reducing stimulus, judging spikes in inflation would be transient.

“It is worth noting that the FOMC Minutes predate the latest CPI and payroll/earnings numbers, so the fears of the minority on the FOMC are likely to have become a little more acute since the April meeting,” said Tapas Strickland, director of economics, markets at RBA in Sydney.

The Fed minutes lifted U.S. bond yields a tad, with the 10-year Treasuries yield at 1.671%, compared with around 1.65% just before the release of the minutes.

Still, yields have so far remained below their March peaks, in part capped by doubts over how aggressively a dovish Fed could move towards removing stimulus.

“Towards the summer, the U.S. has fiscal issues, and it is uncertain how big fiscal spending will be. It will be difficult for the Fed to make any moves without more clarity on fiscal policy,” said Minori Uchida, chief currency analyst at MUFG Bank.

“I’d think the dollar will gain on talk of tapering in the very near-term but I doubt it will last long,” he added.

Cryptocurrencies were volatile after suffering one of their biggest losses on Wednesday in the wake of China’s decision to ban financial and payment institutions from providing digital currency services.

Bitcoin last traded up 4.5% at $38,464, having fallen to as low as $30,066 on Wednesday, which represented a whopping 54% fall from its record high hit just over a month ago.

Ether stood almost flat at $2,470 after having plunged more than 10% to as low as $2,160 earlier. On Wednesday, it fell 22.8%, its biggest daily fall since March 2020.

The U.S. dollar teetered near a six-year low against its Canadian counterpart and nursed losses against European currencies as expectations that U.S. interest rates will remain low undermined the greenback.

The minutes from the U.S. Federal Reserve’s most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance.

Investors will also be scrutinizing consumer price data in Britain and Canada later in the trading day to determine how quickly major economies will be forced to rein in their accommodative monetary policy, which holds the key to the dollar’s trend in the medium term.

The dollar sank to a six-year trough against the Canadian dollar and teetered near multi-month lows versus other major peer currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated that he does not expect interest rates to rise until next year, fueling a further decline in bets that inflationary pressure could force the Fed to act sooner.

This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed.

The growing market consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

“The dollar is on its knees and this seems to be a direct result of how investors feel about the U.S. inflation outlook and the Fed’s reaction,” said Valentin Marinov, head of G10 FX research at Credit Agricole.

Marinov highlighted two inflation outlook scenarios that would have different impacts on the markets – the first one being the current market expectation that price growth will soon ease.

“This will keep the Fed dovish, U.S. real yields very negative and the dollar weak … boosting commodity prices and supporting risk assets,” he said. “Under the second inflation outcome, we see a more persistent rebound of the U.S. inflation this and, potentially, early next year.”

Under Marinov’s central scenario, that could nudge the Fed towards tapering bond purchases this summer, thus boosting the outlook for U.S. Treasury yields and the dollar.

The benchmark 10-year U.S. Treasury yield stood at 1.6471%, extending a pullback from a five-week high reached last week.

The dollar traded above $1.22 to the euro, the single currency hitting its highest against the greenback since Feb. 25. The British pound rose past $1.42 for the first time since Feb. 24. Sterling has been buoyed as investors cheer the gradual lifting of strict coronavirus restrictions.

The Canadian dollar advanced to a six-year high of 1.2013 to the greenback, aided by a rise in oil prices. Up 5% against its U.S. peer year-to-date, the trader-nicknamed “loonie” is the best performing G10 currency on the year.

The dollar lost 0.3% to 108.96 yen. The Japanese currency is the worst-performing G10 currency this year, down over 5% year-to-date against the greenback amid worries about Japan’s slow pace of vaccinations and weakness in the greenback.

Some investors were already scaling back expectations for a Fed rate hike this year, and Kaplan’s comments gave traders even more incentive to sell the dollar.

The onshore yuan edged up to 6.4188 per dollar, not far from an almost three-year high reached last week.

The Australian and New Zealand dollars rose as much as half a percent each against their U.S. counterpart.

In the cryptocurrency market, bitcoin rose 3.3% to $45,023.53 but was still close to a three-month low after Tesla boss Elon Musk dented enthusiasm for the digital asset.

Rival digital currency ether rose 6.50% to $3,494, steading from a two-week low on Monday.

The U.S. dollar found pockets of support in Asia on Monday, but struggled to post gains, as investors are heavily positioned for it to fall further while the U.S. Federal Reserve holds interest rates low and U.S. trade and current account deficits grow.

Easing commodity prices and virus outbreaks in Singapore and Taiwan — where COVID-19 had been contained — helped modest dollar gains of 0.2% against the Australian and New Zealand dollars in the early part of the Asia session.

The greenback also rose 0.1% against the euro and the yen. But it remains close to testing major support levels, which if broken could see a return to a downtrend that pressed it lower through April.

A dollar bounce that followed higher-than-expected inflation data last week has also faded as traders figure the Fed will keep rates low.

The dollar last traded at $1.2134 per euro and has support around $1.2179. The dollar index is likewise, at 90.389, just above key support at 89.677 and 89.206. It bought 109.45 yen and traded at $0.7758 per Aussie and $0.7228 per kiwi.

Fed minutes, from an April meeting that predated the data surprise on inflation last week, are due on Wednesday and are the next market focus for clues on the Fed’s thinking.

“We expect the minutes … to reiterate that policymakers consider the pick up in inflation to be transitory,” said Kim Mundy, a currency strategist at the Commonwealth Bank of Australia in Sydney.

“The upshot is that we do not expect the (Fed) to consider tapering its asset purchases soon,” she said. “The dollar is expected to resume its downtrend this week after last week’s CPI-inspired boost.”

Speculators increased their bets against the dollar last week, mostly by adding to bets on the euro and to a lesser extent sterling as Britain and Europe head toward recovery.

Sterling was perched near a two-and-a-half-month high on Monday, at $1.4085, as Britain reopens its economy after a four-month COVID lockdown.

Things are travelling in the opposite direction in Asia where some early leaders in taming the pandemic are now dealing with new outbreaks. Singapore and Taiwan have both tightened curbs as cases rise and the Taiwan dollar fell to a three-week low on Monday.

The dollar crept up 0.1% against the Chinese yuan to trade at 6.4424 ahead of industrial output and retail sales figures due mid morning on Monday.

Elsewhere cryptocrrencies traded under pressure after another weekend bouncing around following tweets from Tesla boss Elon Musk. Bitcoin hit its lowest since February on Sunday after Musk hinted at Tesla possibly selling its holdings.

Bitcoin last traded 2% weaker at $45,302 and ether was 4% lower at $3,421.