Dollar gains as traders wait to see if U.S. jobs data is strong

[December 03, 2021]  By Tommy Wilkes

LONDON (Reuters) - The dollar gained on Friday against most major currencies as traders positioned ahead of key U.S. jobs data that could clear the path for an earlier rate hike by the Federal Reserve.

Fed officials speaking on Thursday joined Chair Jerome Powell in striking a hawkish stance, with San Francisco Fed President Mary Daly saying it may be time to "start crafting a plan" to raise rates to combat inflation, and Richmond Fed President Thomas Barkin throwing his support behind "normalising policy."

At the same time, the continued spread of the Omicron coronavirus variant globally has buoyed safe-havens like the dollar and yen and put pressure on riskier currencies over the past week.

"It's clear from comments this week by Chairman Jerome Powell and his colleagues that the plan has changed recently and they now intend to taper faster, raise rates sooner and of course, retire the use of the word transitory," said Craig Erlam, an analyst at OANDA.

"But Omicron could complicate efforts further just as the economic data was starting to catch up. A strong report today leaves the Fed well and truly backed into a corner."

The dollar index, which measures the greenback against six major peers, gained 0.1% to 96.204, setting it up for a weekly advance. That would be a sixth weekly gain, the longest stretch since January 2015.

Money markets see high odds of the Fed raising the target rate by a quarter point at its June meeting.

Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting.

Economists in a Reuters poll estimate the United States created 530,000 new jobs last month, continuing a run of strong data. The numbers are due at 1330 GMT.

"Whatever the outcome in today’s report is, the Fed have been left surprised and will likely push on with confirming a faster taper," said MUFG analysts.

That would likely "result in USD crosses reverting back to pre-Omicron levels close to 97.00 on DXY", while the "EUR/USD is likely to grind lower toward the $1.1000 level," they said.

The euro held at $1.13, unchanged on the day and consolidating after its drop to an almost 17-month low at $1.1186 last week.

The dollar rose 0.1% to 113.31 versus the Japanese yen.

The Aussie dropped 0.5% to a new 13-month low of $0.7049, falling for a fourth consecutive session.

Both the European Central Bank and Reserve Bank of Australia, which decides policy on Tuesday, have stuck to dovish stances, pushing back against market bets that policymakers will be forced to bow to inflationary pressures.

Sterling slipped 0.2% to $1.3274.

In emerging markets, Turkey's volatile lira edged near to its record low on Friday, triggering direct central bank intervention selling dollars.

(Editing by Ana Nicolaci da Costa and Angus MacSwan)

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