A businessman is seen holding up a stack of US banknotes.
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The dollar was perched near multi-week highs on Friday, enjoying its biggest gains in about a month after robust jobs data drew investors’ attention to the strength of the U.S. recovery and the possibility that ‘it leads to a tightening of the policy.
The next test comes later today when data on non-farm wages in the United States is released. Street’s consensus predicts that around 650,000 jobs will have been created in May, although the “number of whispers” among traders is higher, closer to 800,000.
Private payrolls – a somewhat unreliable guide – surged overnight with an increase of 978,000, against expectations of 650,000, which sent the dollar rebounding.
It rose 0.7% to a three-week high of $ 1.2118 per euro and rose by the same margin to a two-month high of 110.32 yen. Gains topped 1% against the Aussie and Kiwi, which fell from recent ranges to their lowest in weeks.
The Chinese offshore yuan rose to 6.4 per dollar in early Asian trading, while other moves were only slight as markets now await payroll figures, due at 12:30 p.m. GMT, trade in ‘options showing that it should trigger volatility.
“It’s clear that traders are hedging dollar shorts in jobs data,” said Chris Weston, head of research at broker Pepperstone in Melbourne.
He estimates, as a rough guide, that a million jobs or more could see the Aussie fall another 1%, the euro fall by about 0.8% and the dollar / yen exchange rate gain this. rising as traders factor in a policy response to the strong economy.
“Between 250,000 to 500,000 jobs, we will potentially see the dollar / yen drop 0.6% to 0.8%,” Weston said. “A consistent number won’t give us much to work with, so movements in the market will be dictated by the high quality of factors – April print revisions of 266,000, unemployment rate, hourly earnings.”
The question is whether the figure indicates the kind of hiring that could lead to pandemic job losses, raise wages and spur broad U.S. growth that increases the trade deficit and weighs on the dollar – or whether the going is good. ‘impression that they are overheating.
Positioning data shows investors are selling a lot of dollars, leaving the market hypersensitive to any suggestion of a change in direction for the currency or a change in the rate outlook – hence the market price of options for a bumpy ride.
Overnight dollar / yen implied volatility hit a monthly high above 8% on Thursday and euro / dollar implied volatility hit its highest level since mid-March.
Brian Daingerfield, head of G10 monetary strategy at Natwest, sees a wage bill of around 550,000 as the number of “golden loops”: “strong enough to sustain the recovery but not strong enough to advance fears of decrease”.
This could weaken the dollar overall, he said, offsetting Thursday’s moves, while bonds could recover lost ground. Benchmark ten-year US Treasury yields rose 3.6 basis points to 1.6300% overnight and opened near that level in Tokyo on Friday.
The US dollar index, which measures the greenback against a basket of six major currencies, rose 0.7% on Thursday to a three-week high of 90.574 on Friday.
The Australian dollar was licking sores at $ 0.7652, after falling to its lowest level since mid-April overnight, while the kiwi was parked at $ 0.7136 after slipping to its cheapest since early May Thursday.
The British pound was flat at $ 1.4099 in Asia after falling from its 20-day moving average as the dollar rose. The yuan fell to 6.4014.
Cryptocurrencies held onto several days of gains to leave bitcoin at $ 38,737 and on track for its best week in a month.