FOREX-Dollar pauses as rate hike fears subside, Fed minutes awaited

  • 7/5/2021
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* Graphic: World FX rates tmsnrt.rs/2RBWI5E * Headline U.S. jobs beat f’cast but details softer-than-expected * Dollar pulls back in response to easing rate hike fears * Fed minutes; RBA on the horizon this week LONDON, July 5 (Reuters) - The dollar was stuck in neutral on Monday, after hitting a speed bump when last week’s mixed bag of U.S. labour data allayed investor fears about a hastening end to monetary stimulus. While the headline June job creation figure beat forecasts, unemployment ticked higher and workforce participation didn’t budge - suggesting positive progress, but space for the Federal Reserve to wait before tapering asset buying or hiking rates. Bonds rallied, stocks rose and the dollar slipped in the wake of the data - dropping most against the risk-sensitive Australian and New Zealand dollars and the rates-sensitive yen. It steadied with slight but broad gains in the Asia session, which carrying over to trading in Europe. It gained about 0.2% against the kiwi, which sat at $0.7022, traded flat at 111.05 yen and climbed by about 0.2% to $1.1859 per euro . U.S. markets are closed on Monday for the Independence Day holiday. “Friday’s NFP jobs report gave something for everyone in terms of an above-consensus NFP gain, but also an above-consensus unemployment rate,” strategists at ING said in a note to clients. “U.S. interest rate markets slightly softened their stance on early Fed tightening and the dollar ended slightly softer. Today’s U.S. public holiday suggests trading will be quiet today, although the Fed story will very much re-emerge on Wednesday evening when investors pore through the minutes of the pivotal June 16th FOMC (Federal Open Markets Committee) meeting.” The dollar index was flat at 92.288, having dropped to that level on Friday. But with a 2% rise in the three weeks since the Fed surprised investors with projected hikes in 2023, analysts think the dollar has room to rise a bit further. “Since the hawkish tilt of the Fed in June, the dollar has been increasingly sensitive to the strength of the domestic data whilst some DM and EM peers still battle COVID outbreaks,” analysts at Maybank in Singapore said in a research note. “As such, this dollar strength can linger a while longer and a sanguine risk climate may not be entirely detrimental for the greenback at this time.” Elsewhere, sterling was flat at $1.3835 and emerging market currencies in Asia made small gains to catch up with the dollar’s Friday drop. MINUTES Traders’ focus this week is on minutes from the Fed’s June meeting - due Wednesday - and on a meeting of Australia’s central bank, both having the potential to rouse currencies from months of range trading amid uncertainty around policy outlook. “More information on when the FOMC could taper its asset purchases can boost U.S. interest rates and the dollar,” said Commonwealth Bank of Australia analyst Joe Capurso, referring to the rate-setting Federal Open Market Committee. “So can further evidence that the FOMC’s outlook for inflation is shifting. In particular, analysts will look for signs that the FOMC is less confident the spike in inflation will be transitory,” he said. “Or that the FOMC’s tolerance for an inflation overshoot is waning.” Also on the horizon this week is a Reserve Bank of Australia (RBA) meeting on Tuesday, which has markets on tenterhooks because the central bank has flagged a decision on the fate of its bond purchase programme and yield target. Analysts said if that anything that looks like tapering comes from the hitherto dovish RBA, the Australian dollar may rise - while the Aussie could slip if the cautious tone stays. No change to the cash rate is likely, but economists expect the three-year yield target to stay on April 2024 bond - without being extended to the November 2024 bond line, and for the RBA to adopt a flexible approach to bond purchases. Cryptocurrencies were offered on Monday, with bitcoin below its 20-day moving average at $34,256 and ether down 3% at $2,280. Reporting by Ritvik Carvalho; additional reporting by Tom Westbrook in Singapore; Editing by Kevin Liffey Our Standards: The Thomson Reuters Trust Principles.

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