Dollar Near One-Week High Before June Jobs Data Watched by Fed

  • Employment is forecast to rise after May trailed estimates
  • Traders see a 13% chance Fed will increase rates in 2016

Why Investors Could Be Bullish on Dollar

The dollar traded near the highest level in more than a week before a U.S. jobs report Friday that may provide clues on whether the Federal Reserve will raise interest rates this year.

The U.S. currency was stronger against most of its major peers a day after minutes from the Fed’s June meeting showed some policy makers were concerned that the employment slowdown in May may indicate the U.S. economy is losing momentum. Futures are signaling that traders see a 13 percent probability the Fed will raise interest rates by year-end, hampered by concern about the economic outlook and financial stability after the U.K.’s vote to leave the European Union.

"Even if we do get a decent rebound from a a pretty weak report in May, I’m reluctant to think you’ll have a runaway bid on the dollar," said Mazen Issa, senior foreign-exchange strategist at Toronto-Dominion Bank in New York. "Markets are a little bit desensitized to the data until there’s more clarity on the effects from the U.K. voting to leave the EU."

The dollar has weakened this year as the Fed cut the number of expected rate hikes to two from four, curbing the relative allure of the currency. Even a jump in employment may not result in a change in the U.S. rates outlook because the Fed must weigh the prospects for the local economy against external risks, such as Britain’s June 23 Brexit decision. 

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major counterparts, was little changed at 8:40 a.m. in Tokyo Friday, after rising 0.1 percent as of of 5 p.m. New York time. On Wednesday, it reached the strongest level since June 28.

U.S. payrolls rose 180,000 in June, economists surveyed by Bloomberg predict, after the smallest increase in hiring in May since 2010. Companies in June added 172,000 workers, according to a report from the ADP Research Institute in Roseland, New Jersey, while weekly initial claims for unemployment insurance fell to the lowest level since April.

“Market participants will require stronger evidence that the U.S. economy is proving more resilient given heightened uncertainty over the outlook following the Brexit vote,” said Lee Hardman, a London-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “Even if the nonfarm payroll report is stronger than expected, the dollar upside could still be only modest for now. The market doesn’t expect the Fed to raise rates this year.”

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