🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

Dollar retreats ahead of key payrolls data

Published 07/07/2023, 03:36 AM
© Reuters.

Investing.com - The U.S. dollar retreated in early European hours Friday, but is still on course for small gains this week after robust labor data, with the monthly payrolls report still to come, raised the prospect of higher-for-longer Federal Reserve interest rates.

At 03:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 102.710 but is still on track to record a small gain this week having climbed above 103 during the previous session.

Nonfarm payrolls due later

Data released Thursday showed that ADP private payrolls surged in June in the biggest rise since February 2022, while the number of Americans filing new claims for unemployment benefits rose moderately last week.

These data releases point to a resilient labor market, which has managed to withstand a year-long aggressive tightening cycle, suggesting that the Federal Reserve can continue to raise interest rates to get fully on top of elevated prices.

Additionally, the 2-Year Treasury yield, which typically reflects near-term interest rate expectations, traded near 5%, having surged to a 16-year high of 5.12% on Thursday.  

The focus now will switch to the widely watched monthly nonfarm payrolls release, for further clues as to the Fed policymakers’ intentions later this month.

This is expected to show nonfarm payrolls increased by 225,000 jobs last month after rising 339,000 in May and 294,000 in April.

German industrial production weakens

EUR/USD edged lower to 1.0886, after German industrial production fell 0.2% on the month in May, indicating that the industrial sector in the eurozone’s largest economy and manufacturing powerhouse continues to struggle.

Yet, the European Central Bank has signaled that another increase in interest rates later this month is virtually a done deal as it battles to get on top of elevated inflation.

“We suspect the pair is facing some downside risks in the latter part of the year after the FOMC minutes set the bar quite high for data to convince markets to price out Fed rate hikes,” said analysts at ING, in a note.

Yen in demand as safe haven

USD/JPY fell 0.4% to 143.47, with the yen in demand as a safe haven after the strong U.S. labor data pointed to more aggressive tightening, weighing on the global growth outlook and this risk sentiment.  

Elsewhere, GBP/USD edged lower to 1.2738, retreating from a two-week high of 1.2780 on Thursday, with the Bank of England set to also raise interest rates as U.K. inflation remains the highest in the developed world.

AUD/USD rose 0.1% to 0.6628, while USD/CNY fell 0.1% to 7.2446, with the yuan boosted by a series of strong midpoint fixes by the People’s Bank of China.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.