US dollar ticks higher ahead of US jobs data

London

THE US dollar rose on Thursday as traders awaited a batch of US economic data that could set the tone at central bank meetings later this month.

Investors have bet on the dollar falling as the world recovers from the Covid-19 pandemic, but they have lately grown nervous over whether a surprisingly strong US economic rebound poses a threat to the assumption that interest rates will stay low for a long time. The mood has kept speculators from adding much to short positions in recent weeks and has put the brakes on what a month ago seemed like a relentless downtrend.

Against the euro the dollar traded 0.2 per cent higher at US$1.2187, and it crept higher versus Antipodean currencies. It rose 0.2 per cent to buy 109.78 yen.

The dollar index, which measures the greenback against a basket of six currencies, rose to 90.112. It has found strong support around the 89.946 mark in recent sessions after falling 2 per cent in April and a further 1.6 per cent in May.

"At least for now, most of what is happening is simply confirming the consensus narrative and thus surprises are low," said Mikael Milhoj, chief analyst at Danske Bank, noting the rangebound trade in euro/dollar.

"Maybe the next round of PMIs or the upcoming FOMC meeting can change that - but we are likely going sideways for now amid a vacuum in key data/surprises," Mr Milhoj said.

Fed officials have begun to hint at tapering discussions and on Wednesday the Fed announced it will unwind corporate bond holdings it amassed through an emergency facility last year - another sign of pandemic measures coming to an end.

"As long as the upcoming US labour data doesn't surprise materially on the upside, imminent Federal Reserve tightening expectations should remain at bay and allow for a gradual USD weakness," ING said in a note to clients. April's big miss on payrolls, when monthly hiring of 266,000 confounded expectations for one million, has added to the nervousness, with a miss likely to weigh on the dollar while a beat could support it. The consensus estimate is for 664,000.

In wider currency news, Russia will completely remove US dollar assets from its National Wealth Fund (NWF), while increasing the share of the euro, Chinese yuan and gold, Finance Minister Anton Siluanov said on Thursday, with the changes expected within a month. The move did not have any immediate impact on currencies.

Sterling was the best-performing G-10 currency against the dollar in May, with a 2.9 per cent gain, but moves have been even more dramatic against the Japanese yen, since there are no expectations of Japan's gigantic monetary support backing off.

Sterling was 0.1 per cent higher to the dollar at US$1.4180 on Thursday as investors fret a little about whether a new virus variant spreading in Britain can delay plans for reopening the economy. REUTERS