Dollar Declines From Highs as Fed Favors Shrinking Balance Sheet

Updated on
  • Minutes of March meeting signal potential move later in 2017
  • ADP employment data helped spur strength earlier in session

The dollar briefly spiked to the day’s highs and then surrendered its gains after the minutes from the Federal Open Market Committee’s meeting last month showed most officials backed a policy change that would begin shrinking the central bank’s balance sheet.

The U.S. currency trimmed its first advance against the yen this month as the signal on the balance sheet fueled bets that officials would opt for a less aggressive tightening path. The greenback rose earlier after a robust private employment report spurred speculation that Friday’s government labor data will signal U.S. economic strength.

  • EUR/USD fell toward the 100-DMA at 1.0624 support before bouncing after Fed officials reiterated their outlook for gradual rate increases.
  • The ADP Institute reported that the economy added 263,000 private jobs in March, surpassing estimates for a gain of 185,000 and beating whisper numbers centered around 250,000. The data inject upside risks to forecasts for this week’s employment report, where forecasts call for a gain of 180,000 jobs. ADP and NFP correlations have tightened over the past year.
  • “The dollar remains on a secular uptrend” over the next three to four years versus other G-10 currencies, said Thanos Bardas, senior portfolio manager and global head of rates at Neuberger Berman in Chicago.
  • Dollar-yen gains may be further limited by supply related to large option expiries between 111.00 and 112.00 that roll off over the course of this week.
  • Elsewhere, the South African rand fell more than 1% as that country’s political worries continue to weigh on the currency.

— With assistance by Elizabeth Stanton

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