- Median forecast sees 185,000 U.S. jobs created in October
- Odds of Fed rate increase by December put at more than 50%
The dollar was set for its fourth weekly gain versus the euro before U.S. jobs data which may further boost investor expectations the Federal Reserve will raise interest rates next month.
The U.S. currency held close to its strongest level versus the euro since July as economists predicted employers added 185,000 workers in October, up from 142,000 the previous month. An increase may make a divergence in monetary policy between the Fed and central bankers in Europe and Japan more likely as they undertake unprecedented stimulus, which tends to weaken a currency. The dollar has appreciated against 13 of its 16 major peers this week.
“The market is geared for a relatively solid report,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “But if you look at the range of analyst expectations, it’s quite wide. If the number comes in around 180,000, it will support the U.S. dollar. Below that, even at 120,000, I don’t think will be reason for the Fed to cancel the liftoff.”
Nguyen said a reading at or above consensus could help the dollar strengthen toward $1.08 per euro. The greenback was little changed at $1.0876 per euro as of 7 a.m. New York time, after touching $1.0834 on Thursday, the strongest since July 21. It was on track to appreciate 1.2 percent this week.
If the jobs number misses the consensus but stays above 100,000, “the initial reaction will be dollar weakness, but then it will provide an opportunity to investors to get back into dollar-long positions,” Nguyen said.
A long position is a bet an asset’s price will increase.
The U.S. currency rose 0.1 percent to 121.91 yen Friday, having advanced to 122 yen the previous day for the first time since Aug. 24.
A gauge of the dollar versus its major peers has risen 0.9 percent this week, and reached Friday its highest level since March 16.
A rate increase in December is a “live possibility” if U.S. economic data hold up, Fed Chair Janet Yellen told Congress on Wednesday. The Bank of Japan kept its current unprecedented asset purchases in place last week while the European Central Bank has suggested it may expand its easing program next month.
Traders see a 56 percent chance that the Fed will boost its benchmark from near zero in December, up from 34 percent on Oct. 26, the day before the central bank’s last meeting. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.
Even a non-farm payrolls number in line with market expectations “will likely see another leg higher for the dollar as markets will up the odds of a December rate hike,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Prospects of diverging monetary policy will see further downward pressure on the euro.”