Dollar Drops for Sixth Week as Pace Accelerates; NFP No Comfort

Updated on
  • Robust hiring not enough to outweigh FX policy uncertainty
  • Schaeuble rebuts criticism over weak euro; Iran sanctions set

The dollar is on track for its sixth week of losses and for its steepest weekly drop since July as U.S. employment data that showed robust hiring was marred by little evidence of wage pressures. The greenback remains defensive amid uncertainty about the Trump administration’s dollar policy and as the president imposed fresh sanctions on Iran.

The dollar shed early gains after subdued wage growth signaled that there’s little pressure on the Fed to step up its pace of interest rate hikes this year from the two or three that are currently envisioned. Chicago Fed president Charles Evans noted the data was strong and said he would be comfortable with two or three rate hikes in 2017.

The dollar saw choppy trading after the employment data, briefly rising to new highs against several G-10 peers before dollar-buying enthusiasm fizzled as the wage data was assessed. The Bloomberg dollar index was down ~0.2% after holding gains of ~0.3% before the data. The 10-year Treasury yield remained near its low for the session while stocks were near session highs, holding gains of ~0.7%.

The dollar’s direction remains unclear for now as Trump tweets on FX this week have offered about the only clues to the administration’s stance amid a leadership vacuum at the Treasury department while secretary-nominee Mnuchin awaits confirmation. German Finance minister Wolfgang Schaeuble earlier rebutted U.S. criticism of a weak euro while taking a poke at Trump advisers, saying that it’s not his government that sets the value of the euro.

While the dollar has approached levels that just a few weeks ago were deemed attractive for longer-term players to begin building USD longs, an FX policy shift in the U.S. could outweigh potential advantages of a robust economy and rising yields, said traders who asked not to be identified because they are not authorized to speak publicly.

  • EUR/USD rose to a fresh high near 1.0800 late morning after dropping as low as 1.0713 after the jobs data; offers are in place above 1.0830 and may slow or cap gains as they did Thursday
  • EUR is likely to face technical resistance at the Dec. 8 high 1.0874
  • USD/JPY fell to a fresh low at 112.32, eclipsing the 112.51 low set overnight after the BOJ tweaked its bond buying programs, giving JPY a brief boost; the dollar remains close to the weekly low near 112.00 and stop-loss sell orders are in place below that level, a trader in London said
  • GBP/USD fell as low as 1.2460 in Friday trading, extending its drop from Thursday’s high at 1.2706 as services growth in the U.K. cooled
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