LDN - Business

Dollar climbs ahead of U.S. jobs data

[June 03, 2021] By Ritvik Carvalho

LONDON (Reuters) - The U.S. dollar rose on Thursday as traders waited for a batch of U.S. economic data that could set the tone at central bank meetings later this month.

Investors have bet on the dollar falling as the world recovers from the COVID-19 pandemic, but they have lately grown nervous over whether a surprisingly strong U.S. economic rebound poses a threat to the assumption that interest rates will stay low for a long time.

The mood has kept speculators from adding much to short positions in recent weeks and has put the brakes on what a month ago seemed like a relentless downtrend.

Against the euro the dollar traded 0.2% higher at $1.2187 and it crept higher versus Antipodean currencies. [AUD/] It rose 0.2% to buy 109.78 yen.

The dollar index, which measures the greenback against a basket of six currencies, rose to 90.112. It has found strong support around the 89.946 mark in recent sessions after falling 2% in April and a further 1.6% in May.

"At least for now, most of what is happening is simply confirming the consensus narrative and thus surprises are low," said Mikael Milhøj, chief analyst at Danske Bank, noting the range-bound trade in euro/dollar.

"Maybe the next round of PMIs or the upcoming FOMC meeting can change that - but we are likely going sideways for now amid a vacuum in key data/surprises."

Fed officials have begun to hint at tapering discussions and on Wednesday the Fed announced it will unwind corporate bond holdings it amassed through an emergency facility last year - another sign of pandemic measures coming to an end.

"As long as the upcoming US labour data doesn't surprise materially on the upside, imminent Federal Reserve tightening expectations should remain at bay and allow for a gradual USD weakness," ING said in a note to clients.

"Moreover, our economists look for a modestly below consensus ADP report today, underscoring the above rationale."

U.S. ADP payrolls - sometimes a litmus test for the broader non-farm figures - are expected to show a gain of 650,000 jobs when the data is released at 1215 GMT, a slowdown from a rise of 742,000 in the previous month.

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April's big miss on payrolls, when monthly hiring of 266,000 confounded expectations for 1 million, has added to the nervousness, with a miss likely to weigh on the dollar while a beat could support it. The consensus estimate is for 664,000.

PECKING ORDER

Globally, the Fed is becoming a laggard as other central banks start to discuss and even lay out timetables for hikes, as has happened in New Zealand, Canada, Norway and been hinted at by Bank of England policymakers - helping their currencies.

The next Fed meeting is in June, while the European Central Bank meets next week with investors focused on whether it will persist with its current pace of bond buying.

"Guessing the pecking order in which various central banks might be starting to normalise policy is clearly having an impact," said NAB chief currency strategist Ray Attrill, noting recent gains in the Canadian dollar, kiwi and sterling.

Sterling was the best-performing G10 currency against the dollar in May, with a 2.9% gain, but moves have been even more dramatic against the Japanese yen, since there are no expectations of Japan's gigantic monetary support backing off.

Indeed speculators in March flipped rapidly into short yen positions and Japanese currency has been the biggest major loser against the dollar during 2021, dropping almost 6%.

Sterling is up 10% on the yen this year and the Canadian dollar, which has been further bolstered by rising oil prices, has gained more than 12% against the yen.

Sterling was 0.1% higher to the dollar at $1.4180 on Thursday as investors fret a little about whether a new virus variant spreading in Britain can delay plans for reopening the economy. [GBP/]

Cryptocurrencies rose, with bitcoin last at $39,324 and Ether up 6% on the day at $2,879.

(Reporting by Ritvik Carvalho; Editing by Angus MacSwan, Kirsten Donovan)

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