The dollar index, which measures the greenback against six counterparts, rose to 92.496 in early European deals, its highest since April 6. The index posted its best month since November 2016 in June, driven by the Federal Open Market Committee (FOMC)’s surprise hawkish shift in the middle of that month, when policymakers signaled two interest rate hikes by the end of 2023.
EYES ON PAYROLLS For bond and currency markets the focus this Friday is on the U.S. non-farm payrolls data report and its implication for rates. Economists polled by Reuters expect a gain of 700,000 jobs for June, up from 559,000 in May. But variation among the 63 estimates is big, ranging from 376,000 to more than a million. “Unless the monthly jobs report disappoints, the level to beat for the dollar index is the year’s high at 93.4,” analysts at DBS Bank in Singapore said in a note.
U.S. private payrolls beat expectations overnight, although they are an unreliable guide to the broader labor-market data due out on Friday, which economists forecast will show 700,000 jobs were added in June. Data in Asia on Thursday painted a mixed picture, with Japanese manufacturers’ mood at a two-and-a-half-year high, but factory activity growth there slowing down in the face of the difficulty sourcing computer chips.
Slower vaccination rates in Asia and the extension of restrictions to curb the spread of the virus as the delta variant spreads – as well as a regulatory crackdown on Chinese tech giants – have had regional markets lagging this year.
Since a hawkish shift in tone from the Federal Reserve last month, the U.S. dollar has been elevated and bond markets whipsawed by worries about high inflation and whether it prompts a sooner or swifter than expected end to the ultra-easy policy. Signs of strength in the labor market could add pressure on the Fed to act, and the prospect of higher rates could lift the dollar, while it is vulnerable if the data misses’ expectations.
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