US dollar holds gains after US jobs report, inflation data in focus

[TOKYO] The US dollar held the bulk of its gains on Monday after an upbeat US jobs report lifted it off 15-month lows, with data lined up this week seen as key to whether the greenback's rebound could be sustained in the longer term.

The US dollar, which briefly sank below 110.00 yen to a seven-week low last week, was steady at 110.695 yen after going as high as 111.050 on Friday.

The US dollar index against a basket of six major currencies was a shade lower at 93.330 after climbing 0.75 per cent on Friday. The rally pulled it away from 92.548, its lowest level since May 2016 marked on Wednesday.

The greenback had reached that 15-month trough after a series of weak US indicators added to uncertainty about the Federal Reserve's plan to start shrinking its US$4.2 trillion bond portfolio and the pace of its rate hikes amid political turmoil gripping Washington.

But closely watched US employment data released on Friday helped the dollar snap out of its downturn. Nonfarm payrolls increased by a bigger-than-forecast 209,000 jobs last month, while average hourly earnings increased 0.3 per cent to match expectations after rising 0.2 per cent in June.

"The jobs report was able to halt the dollar's bear trend for now. We can at least hope for the Fed to begin shrinking its balance sheet at the September meeting," said Koji Fukaya, president of FPG Securities.

The euro inched up 0.2 per cent to US$1.1798 after losing 0.8 per cent on Friday, to put some distance between a 2-1/2-year high of US$1.1910 scaled earlier last week.

While the strong jobs data helped the US dollar by keeping prospects of a December interest rate hike by the Fed alive, markets are looking for further evidence of robust fundamentals in order to firm up the US currency's upturn.

"This is going to be a crucial week for the dollar. The limited rise by the 10-year Treasury yield despite the strong payrolls shows that concerns towards slowing US inflation still linger," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Data such as the producer and consumer price indexes may have to be better than expected to douse inflation concerns. Only then would the dollar reach a real turning point."

US producer price index numbers for July will be released on Thursday and the consumer price index figures are due on Friday.

The 10-year Treasury note yield stood at 2.267 per cent, pulling back slightly from Friday's high of 2.290 per cent.

The Australian dollar was up 0.2 per cent at US$0.7944 having trimmed some of its losses after dropping about 0.7 per cent last week against the broadly higher US dollar.

The pound was little changed at US$1.3055. Friday's dollar surge deepened losses for sterling, which was already on the back foot after the Bank of England kept rates unchanged on Thursday and delivered a dovish message. It has slid sharply from a 13-month peak of US$1.3267 set earlier last week.

REUTERS