Dollar wavers with ECB minutes and Friday’s U.S. jobs data in focus

Dollar wavers with ECB minutes and Friday’s U.S. jobs data in focus
Dollar wavers with ECB minutes and Friday's U.S. jobs data in focus
© Reuters. FILE PHOTO: U.S. Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Tom Westbrook and Alun John

SYDNEY/LONDON (Reuters) – The dollar wobbled lower on Thursday, resuming its slide from early in the week, as investors looked ahead to U.S. labour and inflation data for any sign of softness that could signal an eventual slowdown in U.S. rate hikes.

After surging on Wednesday, the greenback struggled to hold its gains, and the euro climbed around 0.3% to as high as $0.9927, trying but failing to break back above parity against the dollar, but holding clear of its 20-year low of $0.9528 hit last week.

The European Central Bank releases minutes from last month’s policy meeting later in the day, which will be scrutinised by traders for any light they could shed about the size of the next European rate hike.

Sterling gained 0.35% to $1.1359, and the dollar also slipped 0.5% against the Swiss franc to 0.9791 francs.

“Sentiment was very downbeat in late Q3, couldn’t go anywhere but up, did go up in early Q4, triggered by the Bank of England intervening (in British government bond markets),” said Stephen Gallo European head of FX strategy at BMO capital markets.

“We don’t really have fundamentally good reasons to be buying sterling, euro or yen aggressively but we all know the dollar is expensive and maybe the Fed is wrong, and it is going to have to pivot.”

A major factor driving currency markets currently is changing expectations of how aggressively central banks’ – particularly the Federal Reserve – will raise interest rates.

A key question is whether they will pivot from primarily worrying about inflation, and hence raising rates aggressively, to also considering slowing economic growth, leading to more cautious rate hikes.

This means U.S. jobs data due on Friday and inflation figures next week will be closely watched.

“Investors will be looking (in Friday’s payrolls report) for signs of anything that might cause the Fed to do an early pivot, everything they say suggests they have no intention of doing so, but I suspect there are people out putting these pivot trades on,” said Gallo.

U.S benchmark treasury yields whose gains on Wednesday had helped drive the greenback higher, were steady on Thursday. [US/]

An unexpectedly modest 25 basis point hike in Australia this week raised hopes other central banks may temper their tightening soon, too.

Interest rate futures imply more than 130 basis points of tightening ahead for the Fed before the middle of next year. [US/][GVD/EUR][GB/]

Australian dollar was at $0.6484. The New Zealand dollar, riding an additional boost from a resolutely hawkish central bank hike on Wednesday, made a two-week peak of $0.5810.

The yen, which has been held steady by the risk of further Japanese intervention, was little changed at 144.56 per dollar.

The Saudi Arabia-led cartel of oil producers agreed to steep production cuts on Wednesday, lifting futures to a three-week high of $93.99 a barrel. [O/R]

That helped the Norwegian crown and Canadian dollar outperform most peers, while hurting currencies like the euro and pound.

“Higher energy prices would have a much more direct impact on the European region given the more direct relationship to their finances,” said NatWest Markets’ strategist Jan Nevruzi.

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