Dollar Rises for Second Week as Fed Rate-Boost Odds Fluctuate

  • Traders await key jobs report for direction on Fed policy
  • Markets ‘swinging from day to day’ on timing of hike: BNY

The dollar headed for a second weekly advance before key jobs data that may help traders narrow down the timing of the next interest-rate increase from the Federal Reserve.

Economists surveyed by Bloomberg predict payrolls growth slowed to 180,000 in August, though the previous two months’ figures both beat estimates. Further muddying the waters was an unexpected contraction in U.S. manufacturing in data published Thursday, which stoked doubts about an imminent boost to borrowing costs.

The Bloomberg Dollar Spot Index slowed its advance from last week as futures traders cut the chance of a rate hike in September to 34 percent, from 42 percent last Friday.

“We’re swinging from day to day, really, and opinions seem to shift,” said Neil Mellor, a London-based currency strategist at Bank of New York Mellon Corp. A strong payrolls number “could in theory precipitate this long-awaited, sustained dollar uptrend,” though “I still have my doubts,” he said. “We’ve already had two successive positive payroll figures, and yet still this sustained dollar uptrend is elusive.”

Bloomberg’s index of the dollar versus 10 major peers rose 0.1 percent as of 7:10 a.m. in New York, leaving it 0.4 percent higher in the week. The U.S. currency climbed 0.3 percent to 103.58 yen, up more than 3 percent in the past two weeks.

Fed Voices

Cleveland Fed President Loretta Mester said Thursday there’s a “compelling” case for gradually raising rates, days after Fed Vice Chairman Stanley Fischer reiterated that economic data will determine the trajectory of policy tightening. A week ago, Chair Janet Yellen told delegates in Jackson Hole, Wyoming, that the case for raising rates had strengthened.

These signals contrast with central banks in Europe and Japan, which are still expanding monetary stimulus, undermining their currencies in the process. The prospect of a Fed rate increase by year-end was at 60 percent, futures data compiled by Bloomberg show, down from 65 percent last Friday.

“We are at an inflection point and non-farm payrolls are seen as the potential catalyst for market direction,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “A solid print today could seal the deal for a September hike and would give another leg up to the dollar, while a weaker print may erase any expectations for a move this month.”

— With assistance by Hiroko Komiya, Masaki Kondo, and Narayanan Somasundaram

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