Dollar Rises as Traders Boost Bets for March Hike After Job Data

  • Traders raise odds for March rate increase to 35% from 31%
  • ‘Dollar domination will continue,’ Mizuho’s Varathan says

How the U.S. Dollar Is Setting Up Tighter Fed Policy

The dollar strengthened for a second day against the yen, spending most of the Asian day above 117, after U.S. jobs and wage data for December bolstered the case for the Federal Reserve to raise interest rates this year.

The odds the U.S. central bank will tighten at its March meeting rose to about 35 percent Friday, from 31 percent the day before. The pound weakened after U.K. Prime Minister Theresa May signaled her determination that Britain will leave the European Union. Japanese financial markets were shut for a holiday.

“Dollar domination will continue in a broad-based manner,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “At least until wider risk aversion overtakes the yield-hardening theme, in which case I expect dollar-yen to turn south.”

  • USD/JPY climbs 0.4% to 117.46 after advancing 1.5% on Friday; a narrow trading range in Treasury futures and a closed JGB market contributed to depress price action
  • USD/JPY reached session high of 117.53 after Nikkei newspaper reported Japan’s Ministry of Finance will boost the maximum sales amount of so-called front-loading bonds to a record 56 trillion yen in the year beginning April 1; resistance: 118.66, Dec. 15 high; 119.53, 76.4% Fibonacci retracement of June 2015 to June 2016 decline
  • GBP/USD slips 0.8%, following 1.1% drop on Friday; May told Sky News on Sunday leaving the European Union would be about “getting the right relationship, not about keeping bits of membership”; pair hit intraday low of 1.2181, breaking below the support of 1.2200 seen in Dec./Jan.
  • AUD/USD gains 0.1% to 0.7306; touched session high of 0.7328 after Australia November building approvals rose 7% m/m vs est. 4.5%; bounces off 0.7300 from option-related bids with strikes expiring around these levels this week and local corporate demand after session low of 0.7289
  • Bloomberg Dollar Spot Index gains 0.3% after jumping 0.6% on Friday
  • USD/JPY options are most active Monday accounting for 35% of total volume, according to trades reported by DTCC; USD/CNY second at 21%
  • Spot USD/CNY shrugs off PBOC reference to reducing forex reserves gradually to trade little changed at 6.9342
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