US dollar buoyed by Friday's payrolls report

London

THE US dollar hit a four-month high against the euro on Monday, reversing a recent fall after strong labour market data encouraged investors to bring forward their bets on the Federal Reserve reducing its pandemic-era stimulus.

The US currency strengthened as far as US$1.1742 to the euro, extending a 0.6 per cent pop from Friday, when the US jobs report stoked bets that the Fed could start trimming asset purchases this year and raise rates as soon as 2022. By contrast, few are expecting the European Central Bank to even hint at slimming stimulus any time soon.

By 6.45pm Monday, Singapore time, the currency pair had settled at US$1.1754. Against a basket of currencies, the US dollar was down 0.1 per cent at 92.811 but remained close to four-month highs of 93.194.

The US dollar also climbed as high as 110.37 yen, after a 0.4 per cent rally at the end of last week.

Following the jobs report, the benchmark 10-year Treasury yield jumped eight basis points on Friday to a two-week high of 1.307 per cent. On Monday it gave back some of those gains to trade at 1.2817 per cent, down six basis points.

"A strong US employment report on Friday triggered a jump in US bond yields, supporting the US dollar higher," said Alvin Tan, currencies strategist at RBC Capital Markets.

Friday's non-farm payroll report showed 943,000 new jobs in July, compared with the 870,000 forecast by economists in a Reuters poll. Numbers for May and June were also revised up. Fed officials have made a jobs market recovery a condition of tighter monetary policy.

Analysts noted that market participants had pushed forward the Fed's tapering announcement to as early as the Jackson Hole symposium in late August.

Speculators cut their net long US dollar positions in the latest week, data showed on Friday, but they are still positioned for its gains.

There were signs of the immediate US dollar spike fizzling, however, with markets generally quiet as investors warily watched a rise in Covid-19 cases across Asia. Sharp falls in gold and oil prices also weighed on sentiment.

The US dollar was unchanged against the offshore Chinese yuan after Friday's rally. Sterling inched higher to US$1.3884 after earlier falling to US$1.3856.

The commodity-linked Australian dollar eased, while the Canadian dollar stabilised after weaker oil prices last week hit the currency. REUTERS