Dollar Rebound From Five-Week Low Hinges on Job-Market Strength

Updated on
  • ADP data beat forecasts, serve as prelude to Friday report
  • Futures show traders betting next Fed rate hike in mid-2017

The dollar rose from its weakest level since June as signs of U.S. labor-market strength fueled speculation traders will bring forward bets on Federal Reserve interest-rate increases.

The U.S. currency advanced versus most major peers. While it’s been under pressure as wagers on a Fed hike by year-end faded in recent weeks, data in coming days have the potential to revive those bets. Companies in July added workers at a steady pace relative to the prior month, a private report showed Wednesday. The figures are a prelude to Friday’s release of the government’s monthly U.S. labor statistics.

Without a repricing of Fed expectations, “a near-term rebound in the dollar should be limited,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London. “The key test will be the nonfarm payrolls report.”

Bloomberg’s dollar gauge rose 0.3 percent as of 5 p.m. New York time, after sliding 0.6 percent Tuesday and touching its lowest since June 24. The U.S. currency increased 0.4 percent to 101.24 yen and 0.7 percent to $1.1149 per euro.

Payroll data released Wednesday by the ADP Research Institute showed that U.S. companies added 179,000 jobs last month, beating estimates.

Fed Refrains

With the U.S. economy yet to show signs of a sustained recovery, and financial markets showing stress from Britain’s decision to leave the European Union, the Fed has refrained from increasing rates this year, after liftoff from near zero in December.

Futures signal that traders don’t expect officials to tighten policy until at least mid-2017. At the start of last week, traders were looking for that hike earlier in 2017, then pushed out those bets in part as second-quarter U.S. gross domestic product expanded at less than half the median forecast. The Fed releases its next policy decision Sept. 21.

Traders had been adding to bets on dollar gains in recent weeks in the futures market. That stance lines up with the consensus view for currencies through year-end. The dollar will appreciate to $1.08 per euro by year-end, according to the median forecast in a Bloomberg survey.

Chicago Fed President Charles Evans said Wednesday that a rate increase could be warranted this year as the economy picks up steam.