US dollar pressured before payrolls shed light on Fed rate path

[TOKYO] The US dollar is set for its first weekly loss against 10 major peers since April as traders await a US jobs report Friday which will help determine whether the Federal Reserve will raise interest rates as soon as this month.

Fed Chair Janet Yellen said last week the ongoing improvement in the US economy would warrant another interest rate increase "in the coming months," though stopping short of giving an explicit hint that the central bank would act at its June 14-15 meeting.

A headline nonfarm payrolls number far exceeding forecasts could heighten expectations of a June move, while even weaker-than-expected readings won't entirely remove the chance of a rate increase, according to Hiroyuki Yamamuro, an analyst in Tokyo at Ueda Harlow Ltd, which provides margin- trading services.

"Markets are unlikely to see slightly weaker headline payrolls figures as an impediment to rate increases, thus limiting the dollar's downside," Mr Yamamuro wrote in a note to clients.

"Trading during Asia will probably be subdued ahead of payrolls, but we should also continue to keep an eye on stocks and oil futures prices."

Bloomberg's dollar spot index, which tracks the currency against 10 major peers, was little changed as of 11:57 am in Tokyo from the close in New York.

It's fallen 0.1 per cent this week, set for the first weekly loss since the period ended April 29. The greenback was at 108.86 yen from 108.87 Thursday, headed for a 1.3 per cent decline since May 27.

Nonfarm payrolls increased 160,000 for the second straight month in May, representing a slowdown from last year's average monthly growth of 229,000 jobs, according to the median estimate in a Bloomberg survey of economists before the labour department report.

The unemployment rate fell to 4.9 per cent from 5 per cent, according to analysts. Dallas Federal Reserve President Robert Kaplan told reporters after a speech in Boston Thursday that he hopes for and expects "solid job growth", above a break-even rate of between 100,000 to 150,000 new positions per month.

Fed funds futures prices indicate a 22 per cent probability that the Fed will raise interest rates in June and 55 per cent odds of a move by July, according to data compiled by Bloomberg.

Brexit Focus

The next focus for markets after the employment data will be Ms Yellen's June 6 address at the World Affairs Council of Philadelphia for her view on global conditions amid growing concern about the UK's June 23 referendum on whether to remain in the European Union, said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd in New York.

"The payrolls and Yellen's comments on June 6 will set the tone for the dollar's next direction," Mr Kaizaki said.

"Markets are focusing on Yellen's view of the overseas environment, including Brexit. If she brushes aside overseas conditions, then a strong payrolls number may heighten speculation for a June rate hike."

The Fed will probably raise rates twice this year and may do so in July, rather than in June, as policy makers consider the impact of Brexit, Patrick Artus, chief economist at French investment bank Natixis SA, said on Bloomberg Television on Friday.

"We have to understand that Yellen has to create some margin for the Federal Reserve to act," he said.

"We should think of the Federal Reserve as doing the maximum in terms of hiking which is consistent with the economy."

BLOOMBERG