Dollar Advances Before Payrolls as ECB Meeting Spurs Euro Bears

  • Private jobs report Wednesday points to solid hiring figures
  • ECB's Draghi has incentives to be ``relatively dovish''

The dollar rose against most major developed peers as employment data due out of Washington and a European Central Bank meeting return focus to the relative strength of the U.S. economy and the timing of Federal Reserve interest-rate increases.

The greenback rebounded Wednesday from two days of losses against the euro and yen after a private report showed hiring in the U.S. was mostly on pace in August. The Labor Department releases its employment figures Friday. The euro remained weaker ahead of the ECB meeting Thursday with weaker commodity prices, slowing trade and a rout in global equities making it likely President Mario Draghi will downgrade the institution’s quarterly inflation forecasts at his press conference.

“Whether this dollar-buying sentiment can be sustained will hinge on how strong the payrolls number will be,” said Jun Kato, senior fund manager in Tokyo at Shinkin Asset Management Co. “Inflation expectations are falling in Europe and whether there will be further easing or not is getting into focus.”

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, added 0.1 percent to 1,210.19 as of 7:26 a.m. in London. It rose 0.3 percent on Tuesday, snapping two days of declines. The dollar gained 0.1 percent to 120.40 yen and was unchanged at $1.1227 per euro.

Private-sector hiring increased by 190,000 in August, up from 177,000 in July, the ADP Research Institute in Roseland, New Jersey reported Wednesday. Government data this week will show U.S. employers added 217,000 workers, more than 200,000 for a fourth month, according to economists surveyed by Bloomberg before the release.

Increase Anticipated

The dollar has appreciated 8.6 percent this year, the best performer after the Swiss franc of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the Fed signaled it is moving toward raising rates for the first time since 2006. The central bank next meets Sept. 16-17.

The U.S. economy expanded across most regions and industries in July and August, the Fed’s Beige Book report showed Wednesday, as tighter labor markets boosted wages for some workers.

In contrast, the real-economy impact of a slowdown in China and the global financial turmoil it has unleashed make it likely Draghi will downgrade the ECB’s quarterly inflation forecasts on Thursday. While economists see further policy action as unlikely for now, they’ll be tuned in for any language indicating the bank’s quantitative-easing program could be expanded.

“The risk is slightly to the downside for the euro as we approach that meeting because there is a chance that we see downgrades on the ECB’s forecasts for growth and inflation,” said Todd Elmer, a Singapore-based strategist at Citigroup Inc. “The incentives are for President Draghi to be relatively dovish in the press conference.”

One-month implied volatility in the currency pair fell to 11.66 percent from 12.08 percent on Wednesday. It climbed to a seven-week high on Sept. 2.

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