Dollar rides high to U.S. jobs test
The U.S. dollar was perched at a 15-month high on the yen and at multi-month peaks against other majors on Friday, as traders wagered strong U.S. labour data could lift it even further.
The jobs report is due at 1230 GMT and is forecast to show a solid rise of 700,000. But there is chatter about the number coming in higher and the risk that upsets the assumption that U.S. interest rates can stay at rock-bottom levels for years.
The dollar has climbed 0.7% against the yen this week and hit its highest since March 2020 on Friday, as investors have re-assessed short dollar positions following months of strong data and a hawkish shift in tone from the Federal Reserve.
The dollar rose 0.06% to 111.65 yen early in Asia, and at $1.1843 per euro it was also a whisker short of Thursday’s three-month high of $1.1837 per euro.
It crept to a fresh two-and-a-half month high of $1.3752 against the British pound and sat near its highest since December against the Australian dollar at $0.7467 – putting it well above milestone lows it struck in May.
“Many people are now arguing (over) whether the dollar has indeed bottomed, because at some point in 2023 the Fed is suggesting that it could be raising interest rates,” said Paul Mackel, global head of FX research at HSBC in an outlook call.
“Also there’s some nervousness whether the dollar’s going to start to behave in a more pro-cyclical manner, that is, if the data is stronger than expected in the U.S. that the dollar really gets more strength from that.”
The U.S. dollar index was steady at 92.549 in Asia, having gained 0.8% over the week so far and moves elsewhere were slight as markets await the U.S. data.
The dollar index is now up 3.4% from its May lows as shorts have cut their positions, and some say that move leaves it vulnerable if the jobs figures miss lofty expectations.
“There has been a tendency in 2021 by the dollar to show an asymmetrical reaction to payrolls, so that a miss generated more dollar downside compared to the upside generated by a stronger-than-expected release,” said Francesco Pesole at ING, which projects payrolls to add between 500,000 and 600,000 jobs.
“Should our economist’s projections for a positive but below-consensus NFP read prove accurate, we expect the price action in FX to prove broadly negative for the dollar as some of the Fed’s hawkish expectations are scaled back,” Pesole said, referring to the U.S. nonfarm payrolls data.