Dollar hits highest in 3 months as payrolls awaited

© Reuters. FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao/File Photo

By Ritvik Carvalho

LONDON (Reuters) - The dollar index hit 3-month highs on Thursday, ahead of a U.S. jobs report that could offer clues on when the Federal Reserve will start to pare back stimulus.

The U.S. currency rose as high as 111.50 yen for the first time since March 25, 2020, up 0.3% on the day.

The dollar index, which measures the greenback against six counterparts, rose to as much as 92.547 in early European deals, its highest since April 6.

The index posted its best month since November 2016 in June, driven by the Federal Open Market Committee (FOMC)'s surprise hawkish shift in the middle of that month, when policymakers signalled two interest rate hikes by the end of 2023.

Traders are looking to Friday's U.S. nonfarm payrolls report for confirmation of that outlook, with economists polled by Reuters expecting a gain of 700,000 jobs last month, compared with 559,000 in May, and an unemployment rate of 5.7% versus 5.8% in the previous month.

The greenback extended gains on Wednesday after data showed U.S. private payrolls increased by a greater-than-expected 692,000 jobs in June.

"The end of 2Q21 was accompanied by additional dollar gains against all FX majors as stronger than expected U.S. ADP data, optimistic comments from Atlanta Fed President Bostic and lack of risk appetite in most equity markets helped the greenback yesterday," said Roberto Cobo Garcia, FX strategist at BBVA (MC:BBVA).

"The move has been prolonged today despite the solid PMI readings in the EMU and the risk on mood in commodities and equity markets."

The euro edged down to $1.1851 after dipping as low as $1.1837 on Thursday for the first time since April 6, before recovering to trade flat after euro zone purchasing manager's indexes (PMIs) came in higher than expected.

Elsewhere in Europe, Sweden's crown dipped, losing 0.3% against the dollar to trade at 8.57 crowns per dollar and 0.2% against the euro to 10.16 crowns per euro.

The Swedish central bank kept policy unchanged on Thursday.

The country's politicians were still struggling to form a new government following the resignation of Social Democrat Prime Minister Stefan Lofven after losing a no confidence vote last week.

The Aussie dollar, seen as a proxy for risk appetite, slid 0.2% to $0.7476, hitting that level for the first time since Dec. 21, with Australia's major centres of Sydney, Brisbane, Perth and Darwin all under lockdown.

The Reserve Bank of Australia will meet next Tuesday to decide on policy, and officials have already flagged it will announce its decisions on its three-year yield target as well as its broader quantitative easing programme, which is set to end in September.

RBA Governor Philip Lowe will also hold a news conference afterwards, in a break from recent procedure.

"If the RBA maintains a dovish tilt and does not take a step towards ending unconventional monetary policy, AUD is unlikely to regain losses sustained since the FOMC meeting," Commonwealth Bank of Australia (OTC:CMWAY) strategist Joseph Capurso wrote in a client note.

"AUD will remain heavy for the next few weeks at least," possibly testing $0.7442, he said.

Sterling slipped 0.1% to $1.3819, edging toward a recent two-month low of $1.37865.