Dollar recovery loses steam in wait for strong clues on rates, economy

By David Henry and Ritvik Carvalho

NEW YORK/LONDON (Reuters) - The dollar took a breather on Thursday morning, waiting for new direction from Friday's U.S. jobs report after a boost the day before from seemingly hawkish comments by a top Federal Reserve official.

The dollar index against major currencies was down 0.1% to 92.189 at midmorning in New York.

The greenback, which gained 0.2% on Wednesday, was trading in a relatively tight range, unmoved by new government reports on jobless claims and the trade deficit that came in close to estimates from economists.

U.S. Treasuries were little changed, too, with the yield on the 10-year note last at 1.2052%.

"The market has been in a wait-and-see mode until we get past tomorrow's nonfarm payroll report," said Ed Moya, senior market analyst at broker OANDA.

Friday's employment report for U.S. employment in July is seen as highly uncertain but critical to Fed policymakers deciding when to begin tapering support for the economy.

"If we get an impressive read tomorrow, that would have the market firmly pricing in tapering and allow the yield curve to steepen and provide the dollar with support," Moya said.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 880,000 jobs in July, up from 850,000 in June. Economists have warned that the spread of the Delta variant of the coronavirus and mixed readings from labor market indicators make estimates for July troublesome.

The British pound was up 0.3% to $1.3931 at 10:12 a.m ET (1412 GMT) after the Bank of England kept the size of its bond-buying programme unchanged and held its benchmark interest rate at a historic low of 0.1%.

The central bank said it would start reducing its stock of bonds when its policy rate reaches 0.5% by not reinvesting proceeds and that it would consider actively selling down holdings when the rate reaches at least 1%.

"The undertones of today’s policy statement and monetary policy report (MPR) are much more hawkish than initially expected," said Simon Harvey, senior FX analyst at Monex Europe.

The euro edged up less than 0.1% to $1.1845.

Against the yen, the dollar rose 0.2% to 109.72.

On Wednesday, Fed Vice Chair Richard Clarida said conditions for an interest rate hike could be met in late 2022, setting the stage for a move in early 2023.

"Clarida’s comments are allowing the dollar to stay well supported into the payrolls numbers on Friday," said ING FX strategists Francesco Pesole and Chris Turner.

Clarida's comments led investors to price in slightly higher chances of a hike in late 2022/early 2023 and to a flattening of the Treasury yield curve as short-term yields rose.

Such a move would likely precede any tightening by the European Central Bank, which is battling to get inflation near its target.

Ether, the second-largest cryptocurrency, was up 2% to $2,788 after an initial dip when the Ethereum blockchain network activated a technical change that was to take some tokens out of circulation.

Bitcoin declined 3% to $38,401.

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Currency bid prices at 10:12AM (1412 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

92.1890 92.2810 -0.09% 2.454% +92.3520 +92.1130

Euro/Dollar

$1.1845 $1.1837 +0.06% -3.06% +$1.1857 +$1.1829

Dollar/Yen

109.7200 109.4900 +0.21% +6.19% +109.7750 +109.4050

Euro/Yen

129.95 129.57 +0.29% +2.39% +129.9900 +129.5800

Dollar/Swiss

0.9063 0.9065 -0.02% +2.44% +0.9077 +0.9052

Sterling/Dollar

$1.3931 $1.3891 +0.29% +1.97% +$1.3946 +$1.3873

Dollar/Canadian

1.2490 1.2542 -0.40% -1.90% +1.2547 +1.2481

Aussie/Dollar

$0.7403 $0.7382 +0.30% -3.75% +$0.7414 +$0.7377

Euro/Swiss

1.0732 1.0728 +0.04% -0.69% +1.0741 +1.0721

Euro/Sterling

0.8500 0.8521 -0.25% -4.89% +0.8528 +0.8496

NZ

Dollar/Dollar $0.7060 $0.7044 +0.22% -1.70% +$0.7073 +$0.7039

Dollar/Norway

8.8080 8.8465 -0.37% +2.64% +8.8495 +8.8135

Euro/Norway

10.4340 10.4555 -0.36% -0.31% +10.4763 +10.4293

Dollar/Sweden

8.6068 8.6095 +0.08% +5.01% +8.6183 +8.5995

Euro/Sweden

10.1954 10.1870 +0.08% +1.18% +10.2035 +10.1820