Dollar pauses as rate hike fears ebb, Fed minutes up next
The dollar took a breather on Monday, after recent gains ran into a speed bump when details of last week’s U.S. jobs report soothed jitters about the timing of U.S. interest rate hikes.
While the headline June job creation figure beat forecasts, unemployment ticked higher, workforce participation didn’t budge and the pace of hourly earnings growth slowed – suggesting rate rises could be further away than markets have come to fear.
Against the risk-sensitive Australian and New Zealand dollars the greenback slipped 0.7% and 0.9%, respectively in the wake of the data on Friday, and then steadied on Monday.
The dollar clawed back slightly against the yen , rising 0.14% to 111.15 yen early in the Asia session, after dropping just below 111 yen following the jobs report. The euro was steady at $1.1859, off Friday’s three-month low of $1.1807.
“The report was mixed enough to probably keep the Fed from announcing tapering soon,” said Westpac analyst Imre Speizer on the phone from Christchurch, referring to the U.S. Federal Reserve which sets the benchmark U.S. policy rate.
“I think the market was thinking you’d get a signal at (the)Jackson Hole (meeting) in August. This report says that that just might be a bit early,” he said.
Sterling was steady at $1.3820.
The U.S. dollar index was flat at 92.334, having fallen about 0.3% to that level on Friday.
It is up about 2% in three weeks since the Fed drove a jump in the greenback in June – and positioning shakeout across bonds and currencies – with a surprisingly hawkish projection for rate hikes beginning in 2023.
Minutes from that June meeting are due to be published on Wednesday and might have more details on policymakers’ thinking.
“(The minutes) will likely reinforce the FOMC’s hawkish shift,” said Commonwealth Bank of Australia analyst Joe Capurso, referring to the rate-setting Federal Open Market Committee.
“More information on when the FOMC could taper its asset purchases can boost U.S. interest rates and the dollar,” he said.
“So can further evidence that the FOMC’s outlook for inflation is shifting. In particular, analysts will look for signs that the FOMC is less confident the spike in inflation will be transitory and/or that the FOMC’s tolerance for an inflation overshoot is waning.”
Also on the horizon this week is a Reserve Bank of Australia (RBA) meeting on Tuesday, which has markets on tenterhooks because the central bank has flagged a decision on the fate of its bond purchase programme and yield target.
The RBA isn’t expected to move its cash rate, but economists polled by Reuters expect it not to extend its three-year yield target beyond the April 2024 bond and to adopt a flexible approach to bond purchases.
Cryptocurrencies were steady on Monday, with bitcoin at $34,903 and ether holding on to recent momentum to trade at $2,318.
U.S. markets are closed on Monday for the Independence Day holiday.