Dollar Marooned at One-Month Low Ahead of Payrolls

© Reuters.

By Peter Nurse

AiVIF.com - The dollar edged lower in early European trading Friday, trading near a one-month low, with all eyes on the release of the monthly U.S. jobs report given its potential impact on Federal Reserve policy. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged lower to 92.210, after earlier falling to 92.153 for the first time since Aug. 5.

USD/JPY rose 0.1% to 110.03, GBP/USD rose 0.1% to 1.3836, and the risk sensitive AUD/USD climbed 0.3% to 0.7422, trading at its highest level since Aug. 5.

The Federal Reserve, and Chairman Jerome Powell in particular, has made a recovery in the country’s labor market a key condition for starting to withdraw its extraordinary monetary stimulus, a move that would benefit the dollar.

This puts the official monthly employment report, due at 8:30 AM ET (1230 GMT), firmly in investors’ crosshairs, amid worries that spiking Covid-19 cases will weigh on the labor market recovery.

Nonfarm payrolls are expected to rise by 750,000 in August, with the unemployment rate falling to 5.2% from 5.4%, but this would still represent a fall from the 943,000 jobs created in July, and the omens aren’t positive.

ADP private payrolls grew by just 374,000 in August, much lower than the around 600,000 jobs that had been widely expected, while Thursday’s weekly jobless claims only showed a small improvement.

The Fed is likely to wait until November to announce the tapering of its asset purchases, former Federal Reserve official Dennis Lockhart said on Thursday, providing policymakers with more data on the labor market's recovery and economic growth.

Elsewhere, EUR/USD rose 0.1% at 1.1877, not far removed from the day’s high of 1.1884, the highest level since Aug. 4.

The euro has been bid of late, helped by sIgns of economic growth in the eurozone as well as rising inflationary pressure, with annual PPI climbing to 12.1% in July, data showed Thursday.

The European Central Bank is due to meet next week, and the policymakers are sure to have a vigorous discussion about the gradual scaling back of the central bank’s monetary stimulus.

“It is no longer carved in stone that the Fed will taper ahead of the ECB,” said analysts at Nordea, in a note.

USD/CNY edged higher to 6.4582 after China’s Caixin services purchasing managers’ index for August fell into contraction territory at 46.7, the lowest level since April 2020.