Thursday, 6 October 2016

Dollar treads water as markets brace for Friday's jobs report

The dollar stuck to narrow ranges against its major rivals in Asian trade on Thursday, ahead of this week's nonfarm payrolls report that could reinforce expectations that the U.S. Federal Reserve will hike interest rates by December.

Beleaguered sterling slumped 0.3 percent to $1.2715 GBP after falling as low as $1.2686 on Wednesday, its weakest in more than three decades on fears of the impact of Britain's impending exit from the European Union.

Underpinning the dollar, Chicago Fed President Charles Evans said he would be "fine" with raising U.S. interest rates by year-end if U.S. economic data remained firm.

On the economic data front on Wednesday, upbeat U.S. services sector activity offset a weaker-than-expected print on private-sector job growth ahead of Friday's jobs report.

The monthly employment figures are expected to show 175,000 jobs were added in September, according to the median estimate of 100 economists polled by Reuters.

Market participants will also look for any upward revision to August's weaker-than-expected gain of 151,000 jobs.

The dollar took a breather from its overnight run-up against its Japanese counterpart. It was buying 103.42 yen JPY, down 0.1 percent but not far from a four-week high of 103.67 yen touched on Wednesday.

"It seems the market was short dollar/yen, which became a crowded consensus trade, so the risk of unwinding had been increasing," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The latest data from the Commodity Futures Trading Commission showed that yen net long positions rose to a five-month peak of 68,892 contracts in the week ended Sept. 27, in the aftermath of the Bank of Japan's decision last month to target Japanese government bonds' long-term yields.

"The dollar/yen got above the Ichimoku cloud, which was a very good sign for Japanese investors," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"But I think most did not expect that uptrend in dollar/yen, because there are no materials on which to sell the yen further and buy the dollar," he said. "Most people would like to check Friday's employment data."

A strong U.S. payrolls report on Friday could see the market price in a 70 percent chance of a December hike, according to Chris Weston, chief market strategist at IG in Melbourne. Bets were a bit over 60 percent as of Wednesday.

Traders were pricing in less than a 20 percent chance that the Fed would raise rates as early as November, according to CME Group's FedWatch program.

The euro was steady at $1.1201 EUR=, supported by higher European bond yields on concerns the European Central Bank might taper the pace of bond-buying before its asset purchase program ends.

A Bloomberg article on Tuesday cited sources as saying the ECB would likely gradually wind down its monthly 80-billion euro ($90 billion) program, spooking investors even though a central bank media officer later tweeted that tapering was not an ECB discussion topic.

The dollar index, which tracks the U.S. unit against a basket of six major currencies, was up 0.1 percent at 96.212 .DXY, but shy of last week's high of 96.442, which was its highest since Aug. 9.

Reference: Reuters

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