Dollar Heads for Weekly Drop Before Fed Watchers Assess Payrolls

  • Weak jobs report `may remove the rate hike option this year'
  • BOJ easing prospects to support dollar-yen: Credit Agricole

The dollar headed for a weekly drop amid concerns that a U.S. payrolls number following a report that showed manufacturing stagnated could scupper an interest-rate increase by the Federal Reserve this year.

The greenback remained near its lowest level in more than a week against major counterparts as investors prepared for Friday’s September employment report. A measure of global equities has dropped about 4 percent since Fed Chair Janet Yellen refrained from increasing rates on Sept. 17, citing international uncertainty and tepid inflation.

“A very weak jobs report will give a new trend as it may remove the rate hike option this year and lead to dollar selling,” said Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Markets need to see rates will keep rising to spark real dollar buying. The main concern is vulnerable stock markets and players are waiting for fresh clues on market direction.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,212.91 as of 7:10 a.m. in London, heading for a 0.1 percent weekly decline. The index gained 0.6 percent in September and 2.8 percent during the third quarter.

Nonfarm Payrolls

Anemic demand from China meant fewer factory orders in the U.S. in September, causing the Institute for Supply Management’s factory index to fall its lowest level since May 2013 in data released Thursday.

The median forecast of 96 economists surveyed by Bloomberg showed employers added 201,000 jobs in September. Fed Bank of San Francisco President John Williams said Thursday risks to the economy from developments abroad haven’t worsened and domestic conditions remain positive, while repeating his call to raise interest rates this year.

“Another 200,000-plus gain in jobs and unemployment near 5 percent could well be greeted with yawns as markets think about all the things that could go wrong between now and the December FOMC meeting to cause the Fed to procrastinate again,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. “It looks like a high bar for U.S. dollar to rally.”

Fed Liftoff

Futures put the probability of Fed liftoff in December at 44 percent, from as high as 64 percent on Sept. 16. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

Japan’s currency was little changed at 120.04 per dollar and 134.11 versus the euro. The single currency was at $1.1172 from $1.1195.

The yen was the best performer over the past three months in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, gaining 5.9 percent. Concerns about China’s economic slowdown and falling commodity prices raised demand for haven assets at the expense of resource-reliant currencies. The Aussie dollar was the worst, weakening 5.9 percent.

The greenback will remain supported versus the yen on prospects the Bank of Japan will ease policy as the Fed prepares to tighten this year, said Yuji Saito, executive director of foreign exchange at Credit Agricole SA in Tokyo.

“People are looking to buy dollar-yen on dips with an eye on potential BOJ easing in October,” he said. “Markets are all waiting for the jobs report. A result in line with forecasts will push the dollar higher against the yen.”

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