US dollar net longs fall to five-week low

[NEW YORK] The US dollar rose to three-week highs on Friday after an influential Federal Reserve official said the US central bank's plan to shrink its bond portfolio this year would not significantly delay its interest rate-hiking cycle.

The greenback initially sold off on a softer-than-expected US jobs report for March, but rebounded as analysts noted the apparent weakness was caused by snowstorms.

Safe-haven buying also supported the US dollar as the market focused on geopolitical events after the United States launched cruise missiles at an airbase in Syria, an ally of Russia.

New York Fed President William Dudley, an advocate of low interest rates, said on Friday that shrinking the Fed's US$4.5 trillion bond portfolio would prompt only a "little pause" in the Fed's rate hike plans, providing relief to dollar bulls banking on more than one rate increase this year.

He added that interest rates are still a primary tool for monetary policy, and not a "gradual" balance sheet reduction.

"Dudley's comments added a tailwind for the dollar," said Joe Manimbo, senior market analyst at Western Union Business in Washington.

"He has softened any suggestion that any reduction in balance sheet would cause a pause in interest rate hikes in a meaningful way."

The New York Fed official had said in an interview last week that trimming the balance sheet was a substitute for rate hikes, which could prompt the Fed to "pause" raising rates at that time.

Investors still expect two more rate increases in 2017, analysts said, although the probability of a June hike has declined to 61 per cent after the jobs report from more than 70 per cent late on Thursday.

The US dollar index rose to three-week peaks of 101.26 and last traded a up 0.5 per cent at 101.16.

The US dollar touched session highs against the Japanese yen following Dudley's comments, and was last up 0.3 per cent at 111.16. The greenback hit a four-week high versus the euro, which fell 0.5 per cent to US$1.0587.

The US dollar's early rebound was spurred by a report showed US non-farm payrolls increased by 98,000 jobs last month, the fewest since last May and far short of the increase of 180,000 jobs expected by a Reuters poll of economists.

The unemployment rate declined to 4.5 per cent from 4.7 per cent in February.

REUTERS