Dollar Pares Gains Before Jobs Report as ECB Grabs Spotlight

Updated on
  • Euro posts broad advance as area’s risks are more balanced
  • Friday U.S. data seen as key for Fed path after March

The dollar relinquished the day’s modest gains as traders shifted their focus from the European Central Bank to the monthly U.S. employment report due Friday for a fresh read on the path of U.S. monetary policy.

The dollar was little changed as measured by the Bloomberg dollar index, holding in the middle of a narrow daily range as momentum stalled after the greenback breached a key technical resistance level at the 55-day moving average.

Despite the surface calm indicated by the index, the dollar was jostled by mixed flows on the day. The euro rose to its highest since Monday after ECB President Mario Draghi gave a more positive outlook for the region’s economy that stopped short of signaling the central bank is contemplating a shift to a more hawkish stance.

Inflation expectations are taking hold, though they haven’t fed through to wage pressures, Draghi said. The central bank raised its 2017 inflation forecast to 1.7 percent from 1.3 percent, but lifted its growth forecast by a smaller margin, to 1.8 percent. As Draghi spoke, the 10-year bund yield rose about 6 basis points before easing back.

While the dollar was losing ground versus the euro, it racked up solid gains against the yen and some commodity-based currencies. That left the greenback evenly mixed versus G-10 peers as the yield on the 10-year Treasury reached the highest since December.

With the February jobs report coming just days ahead of the Fed’s policy meeting, traders are saying the data may have little sway over the expected March 15 decision to hike by a quarter-point. Rather, if payrolls growth approaches the pace seen in the ADP Institute’s report Wednesday, traders say they may shift their focus to the timing of the next move. The Fed said in December that it expects to raise rates three times in 2017.

  • EUR/USD briefly traded above its 55-DMA at 1.0608, filling offers at 1.0600 with further supply seen at 1.0630/35, traders in London said
  • USD/JPY fell back from its 114.97 session high, after offers ahead of 115.00, some of which may be option-related, capped the pair; USD/JPY will find ample supply above 115.00, though not in sufficient quantity to thwart a determined dollar rally, a trader in London said
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