US dollar hits 4-month high against euro on jobs data

London

THE US dollar hit a four-month high versus the euro on Tuesday after upbeat US jobs data bolstered expectations that the Federal Reserve could soon start tapering its massive bond-buying programme.

Analysts said the greenback was supported by rising US bond yields, as the prospect of reduced Fed stimulus weakened bond prices. The 10-year Treasury yield rose to as high as 1.336 per cent in London trade, its highest in more than three weeks.

US job openings, a measure of labour demand, hit a record high in June while hiring also increased, the Labor Department said in a monthly survey on Monday. That followed Friday's non-farm payroll report showing jobs increased by 943,000 in July - above the 870,000 forecast by economists in a Reuters poll.

The US dollar index reached an 18-day high of 93.102 at 10.18am GMT on Tuesday. At 10.54am GMT, it was up 0.1 per cent on the day at 93.034. It hit a four-month high versus the euro, which was down 0.1 per cent on the day at US$1.17265.

Germany's ZEW survey found investor sentiment deteriorated for the third month in a row in August, due to fears that rising Covid-19 infections could hold back the recovery in Europe's largest economy.

Market participants now turn their focus to US consumer inflation data due on Wednesday, which could provide more cues on the timing of the Fed's bond-purchase taper.

Although there is talk among analysts of the market being "data-driven", US jobs market and inflation statistics are difficult to interpret, wrote Commerzbank's Ulrich Leuchtmann. "Even if the macro data from the US is currently astounding, it says little about where the dollar should trade in the medium term . . . And that's why the FX market is wary of any significant reassessments."

Atlanta Federal Reserve Bank president Raphael Bostic said he was eyeing the fourth quarter for the start of a bond-purchase taper, but was open to an earlier move. Boston Federal Reserve Bank president Eric Rosengren said the Fed should announce in September that it will reduce asset purchases in the autumn.

"Market participants will be watching comments from Fed officials even more closely than normal in the near term for any signs that the Fed could speed up plans for tighter policy," MUFG currency strategist Lee Hardman said in a note to clients.

Elsewhere, risk appetite was hurt by worries about growth in China and the fast-spreading Delta variant, which sent oil prices to a three-week low in the previous session. REUTERS