Dollar soars as traders look to Federal Reserve indices from US jobs data

A hand holding US dollar banknotes in China on January 25, 2018.

Zhang Peng | LightRocket | Getty Images

The dollar held on to recent gains on Wednesday as virus issues raised concerns in an already leading market with U.S. employment data seen as crucial to the Federal Reserve’s monetary policy outlook .

Currencies linked to risk-sensitive commodities drove losses overnight, with the Australian and New Zealand dollars each falling around 0.7%. The euro fell 0.2% overnight while the safe haven values ​​of the Japanese yen and Swiss franc remained stable.

Morning trading in Asia has not changed the majors much from these levels, with the euro remaining at $ 1.1902 and the yen at 110.58 per dollar. The Aussie bought $ 0.7517.

“There is a slight downtrend for currencies,” said Sean Callow, analyst at Westpac. “This is the line you would expect on a risky day, and maybe it is a bit of insurance before the payroll,” he added, referring to expected US labor data. Friday.

The dollar index rose 0.2% to a one-week high overnight and was on Wednesday roughly in the middle of the range it found following the startlingly hawkish change in tone from the Fed earlier this month.

Risk aversion has been underpinned by a new spike in global coronavirus infections and restrictive measures to contain them that threaten to delay the pandemic recovery.

The number of cases hit daily records in Indonesia, lockdowns are extended in Malaysia and extended in Australia, while UK travelers face new restrictions as the contagious delta variant spreads.

At the same time, traders are wary of a surprise in US economic data, starting with private wages later Wednesday, but with the main focus on the more comprehensive labor numbers expected Friday.

Signs of strength in the labor market could increase pressure on the Fed to further accelerate interest rate hikes and boost the dollar, while it is vulnerable if data falls outside expectations.

“It’s exceptionally difficult to predict and so the risk of surprise is huge,” said Callow of Westpac. “Super strong could really strengthen the reaction to the (Fed) and very weak could really push back those who bought post dollars (Fed).”

Economists polled by Reuters predict that private payrolls will post a gain of 600,000 in June, a slowdown from a month ago when 987,000 jobs were created. The forecast for the non-farm payroll on Friday calls for an increase of 690,000 jobs.

“It’s not just the nonfarm payroll, but the labor market as a whole,” said Rodrigo Catril, senior currency strategist at the National Australia Bank in Sydney, hourly earnings and the rate. unemployment is also likely to be closely watched.

“There is also a wide dispersion in terms of estimates, which suggests that there will be some disappointments with a low number as well as a really high number anyway.”

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