Dollar set for best month in 4-1/2 years, payrolls test looms
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[June 30, 2021] By
Ritvik Carvalho
LONDON (Reuters) - The dollar was heading
for its biggest monthly rise since November 2016 on Wednesday, supported
by traders' trepidation ahead of unpredictable U.S. labour data and
concern over the spread of the Delta coronavirus variant.
The dollar has gained about 2.5% against a basket of currencies this
month, mostly in the wake of a surprisingly hawkish shift in the Federal
Reserve's rates outlook. Traders think it could move sharply in either
direction if labour data this week provides clues as to the pressure on
policymakers.
On Wednesday, risk-sensitive and commodity-exposed currencies nursed the
largest losses, after the Australian and New Zealand dollars had fallen
about 0.7% against the dollar on Tuesday and the Canadian dollar had
lost about 0.5%.
They were steady in the European session, as were the safe-havens of the
Japanese yen and the Swiss franc which held their own through Tuesday.
That left the euro at $1.1900, the yen at 110.49 per dollar and the
Aussie at $0.7518 - all within sight of recent milestone lows against
the dollar.
The U.S. dollar index, which measures the greenback against a basket of
six major currencies, was steady at 92.041 after touching a one-week
high of 92.194 on Tuesday.
Graphic: Dollar heads for best month gain since November 2016 -
https://fingfx.thomsonreuters.com/
gfx/mkt/oakpedmxnvr/DXY.png
A test of the near-term dollar outlook arrives this week with U.S.
labour data. Signs of strength could add to inflationary pressure on
policymakers to move sooner on rate hikes, while a miss might put some
padding into the timeline.
Private payrolls are due later on Wednesday, but the main focus is on
more comprehensive labour figures due on Friday.
Economists polled by Reuters forecast private payrolls showing a gain of
600,000 in June, a slowdown from a month ago when 987,000 jobs were
created.
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An employee of the Korea Exchange Bank counts one hundred U.S.
dollar notes during a photo opportunity at the bank's headquarters
in Seoul April 28, 2010. REUTERS/Jo Yong-Hak/File Photo
"While the dollar may be vulnerable to potential data disappointments today, we
suspect that any dips in the currency would be bought ahead of the more
important non-farm payroll release on Friday," said Valentin Marinov, head of
G10 FX research at Credit Agricole.
The average forecast for Friday's non-farm payrolls is for a rise of 700,000
jobs, but the variation among the 83 estimates is large, ranging from 376,000 to
more than a million.
Besides the looming data, a fresh spike in global coronavirus infections and in
restrictive measures to contain them kept a lid on currency movements.
Case counts are hitting daily records in Indonesia, lockdowns are being extended
in Malaysia and expanded in Australia, while travellers from Britain are facing
new restrictions as the contagious Delta variant spreads.
Paul Mackel, global head of FX research at HSBC, said currency markets seemed to
be in transition from closely tracking the ebb and flow of risk sentiment
towards a greater sensitivity to interest rates, driving a shakeout that has
lifted the dollar.
"There's been a lot of speculative build-up of short dollar positions over the
last couple of months and we think that these are being washed out," Mackel told
reporters, speaking during an outlook call.
Indeed, data showed the sharpest fall in the value of bets against the dollar in
three months occurred last week, a boost for the greenback as the shorts buy
dollars to close positions.
Sterling traded flat at $1.3832.
(Reporting by Ritvik Carvalho; additional reporting by Tom Westbrook in
Singapore; Editing by Andrew Heavens and Chizu Nomiyama)
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