US dollar stands tall after US jobs report backs Fed tightening plans

[TOKYO] The US dollar was on solid footing in early Asian trading on Monday, after a bigger-than-expected increase in US jobs suggested the Federal Reserve would stick with its tightening plans for the rest of this year.

US job growth surged more than expected in June and employers increased hours for workers, suggesting the Fed could stick to its plan for its third interest rate hike this year and begin to reduce its balance sheet despite sluggish wage gains and tepid inflation.

Against the yen, the US dollar was 0.1 per cent higher at 113.98, after notching a high of 114.18 in the wake of the jobs report, its loftiest level since May 11.

The US dollar index, which gauges the greenback against a currency basket, was steady at 96.018.

"The solid jobs report gives us more reason to expect the Fed to announce that it's prepared to start trimming its balance sheet," said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities.

"By contrast, the Bank of Japan is nowhere near a policy exit, and it's taking steps that weaken the yen," he said.

On Friday, the BOJ sought to keep Japanese government bond yields near its policy target, embarking on a special market operation as well as increasing the size of its regular JGB purchase operations.

Recent positioning data showed that some investors pared their long US dollar positions ahead of the jobs report, amid concerns that a spate of lacklustre data would prompt the Fed to alter its hawkish plans.

Speculators this week slashed net long bets on the US dollar to their lowest since mid-May 2016 in the week ended July 4, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the US dollar's net long position dropped to US$135 million, from net longs of US$4.5 billion the previous week. The latest week marked the first time since mid-April 2016 that net long US dollar positioning fell to under US$1 billion.

Higher US Treasury yields underpinned the US dollar. The benchmark 10-year US yield stood at 2.389 per cent in Asian trading, not far from its US close of 2.393 per cent on Friday, when it touched a more than eight-week high of 2.398 per cent after the jobs report.

The euro edged down 0.1 per cent to US$1.1400 but gained against its Japanese counterpart. The euro was 0.1 per cent higher at 129.99 yen, after rising as high as 130.125 yen on Friday, its highest since February 2016.

REUTERS