FOREX-Dollar on tenterhooks as payrolls test looms

  • 6/3/2021
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* Graphic: World FX rates tmsnrt.rs/2RBWI5E SINGAPORE, June 3 (Reuters) - The U.S. dollar wobbled above major support levels on Thursday, as traders awaited a batch of U.S. economic data that could set the tone at central bank meetings later this month. Investors have bet on the dollar falling as the world recovers from the COVID-19 pandemic, but they have lately grown nervous over whether a surprisingly strong U.S. economic rebound poses a threat to a key assumption that interest rates will stay low for a long time. The mood has kept speculators from adding much to short positions in recent weeks and has put the brakes on what a month ago seemed like a relentless downtrend. Against the euro the dollar traded firmly at $1.2201 and it crept a fraction higher on Antipodean currencies. It rose 0.1% to buy 109.68 yen. The dollar index, which measures the greenback against a basket of six major currencies, held at 89.946 where it has found strong support in recent sessions after falling 2% in April and a further 1.6% in May. “The FX space is essentially in a stasis ahead of the (private U.S. payrolls on Thursday) and non-farm payrolls on Friday, the next event risks that may shake out Fed expectations,” said strategists at Singapore’s OCBC Bank. “Our bias continues to be for Fedspeak to eventually lean less dovish, finally giving a firmer nod to the economic recovery (and) thus providing a positive driver for the dollar.” Fed officials have begun to hint at tapering discussions and on Wednesday the Fed announced it will unwind corporate bond holdings it amassed through an emergency facility last year -- another sign of pandemic measures coming to an end. U.S. ADP payrolls - sometimes a litmus test for the broader non-farm figures - are expected to show a gain of 650,000 jobs when the data is released at 1215 GMT, a slowdown from a rise of 742,000 in the previous month. April’s big miss on payrolls, when monthly hiring of 266,000 confounded expectations for 1 million, has added to the nervousness, with a miss likely to weigh on the dollar while a beat could support it. The consensus estimate is for 664,000. PECKING ORDER Globally, the Fed is becoming a laggard as other central banks start to discuss and even lay out timetables for hikes, as has happened in New Zealand, Canada, Norway and been hinted at by Bank of England policymakers - helping their currencies. The next Fed meeting is in June, while the European Central Bank meets next week with investors focused on whether it will persist with its current pace of bond buying. “Guessing the pecking order in which various central banks might be starting to normalise policy is clearly having an impact,” said NAB chief currency strategist Ray Attrill, noting recent gains in the Canadian dollar, kiwi and sterling. Sterling was the best-performing G10 currency against the dollar in May, with a 2.9% gain, but moves have been even more dramatic against the Japanese yen, since there are no expectations of Japan’s gigantic monetary support backing off. Indeed speculators in March flipped rapidly into short yen positions and Japanese currency has been the biggest major loser against the dollar during 2021, dropping almost 6%. Sterling is up 10% on the yen this year and the Canadian dollar, which has been further bolstered by rising oil prices, has gained more than 12% against the yen. Sterling was steady on the dollar at $1.4160 on Thursday as investors fret a little about whether a new virus variant spreading in Britain can delay plans for reopening the economy. Cryptocurrencies were little changed, with bitcoin last at $38,100. Reporting by Tom Westbrook Editing by Shri Navaratnam and Kim Coghill Our Standards: The Thomson Reuters Trust Principles.

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