By Ritvik CarvalhoLONDON, Oct 8 (Reuters) - The dollar traded flat againstmajor currencies on Friday ahead of a U.S. non-farm payrollsreport
By Ritvik Carvalho
LONDON, Oct 8 (Reuters) – The dollar traded flat against
major currencies on Friday ahead of a U.S. non-farm payrolls
report expected to provide traders with further clues on the
pace of the Federal Reserve’s policy normalisation.
The U.S. Dollar Currency Index, which measures the
dollar against a basket of six peers, rose 0.1% to 94.338, last
trading unchanged at 94.164.
“The dollar will trade soft into the payrolls,” said Neil
Jones, head of FX sales, financial institutions at Mizuho Bank.
“The market is running long and reducing ahead of event risk
in the face of mild pro-risk higher asset prices.”
The dollar gained 0.3% to 111.96 yen, and touched
111.975, the highest level this month, helped by higher Treasury
yields, with the benchmark 10-year bond hitting 1.6010% for the
first time since June 4.
Jones said he expected the yen to weaken to 115 yen per
dollar by the end of December 2021. He said central bank
divergence would remain in play as the world’s central banks
hike rates while Japan remains on hold within a higher
inflationary backdrop.
The euro consolidated around $1.1562, after
weakening on Wednesday to a 14-month low of $1.1529.
The Federal Reserve has said it is likely to begin reducing
its monthly bond purchases as soon as November and follow up
with interest rate increases, potentially next year, as its turn
away from pandemic crisis policies gains momentum.
The non-farm payrolls data, due at 1230 GMT on Friday, is
expected to show continued improvement in the labour market,
with a consensus forecast a Reuters poll of 500,000 jobs added
in September, although estimates ranged from 250,000 to 700,000.
“A softer than expected NFP number would likely trigger some
corrective activity in the USD if it raised doubts about the
Fed’s tapering path, and/or the timing of the first Fed rate
hike of the cycle,” said Jane Foley, head of FX strategy at
Rabobank.
“However, until investors are comfortable again with the
outlook for EM, we expect the USD to remain on the front foot,
so would expect any correction to be fairly limited.”
Following the September Federal Open Market Committee
meeting, Fed Chair Jerome Powell said the upcoming payrolls
report need not be “a knock-out, great, super-strong” report to
keep policy makers on track toward tapering, but it would need
to be “reasonably good”.
Powell’s comment “should make markets more tolerant of a
downside surprise in particular, and the balance of risks
favours a positive USD reaction” to the jobs data, Adam Cole,
chief currency strategist at RBC Capital Markets, wrote in a
research note.
Meanwhile, the Australian dollar slipped back 0.2%
to $0.7299, following a 0.55% surge on Thursday. It earlier
touched $0.7324 for a second day running, the strongest level
since Sept. 16.
The Aussie has made “a decent go at breaking higher,” but
the test will be whether it can stay at about $0.7315 following
several failed attempts this year, Rodrigo Catril, senior FX
strategist at National Australia Bank in Sydney, wrote in a
client note.
Sterling gained 0.1% to $1.3624, holding on to most
of a 0.26% gain from Thursday, when new Bank of England Chief
Economist Huw Pill said inflation pressures were proving
stickier than initially thought, reinforcing expectations for a
rate hike by February.
The Canadian dollar was little changed at C$1.2548
per greenback after earlier strengthening to a one-month peak of
C$1.2534 on the back of rising oil prices.
(Reporting by Ritvik Carvalho; additional reporting by Kevin
Buckland in Tokyo; editing by Susan Fenton and Kevin Liffey)
www.lse.co.uk